The Chancellor confirmed that the stamp duty regime on land and buildings would be overhauled with effect from 1 December 2003. The provisions of the Finance Bill broadly follow that which was expected following the publication of selected clauses following the Pre-Budget report last November.
As already outlined in the autumn, the forthcoming changes to the stamp duty regime, effectively changing it from a document tax to a transfer duty when the new legislation is introduced, are intended to tie in with the introduction of electronic conveyancing and to be a move away from the stamping of documents – an administratively burdensome method for collecting the duty. Although the new regime keeps many of the general principles of the old regime this shift in focus will bring about a number of new planning requirements. In addition the new regime will include a compliance and enforcement regime similar to that applying to other taxes.
Important aspects of this new regime will be:
- an abolition of duty on all transactions involving property other than land, shares and partnership interests;
- a reform of the charge on the rental element of new leases. Duty will be charged at 1% on the lease's discounted net present value above £60,000 (for residential property) or £150,000 (for commercial property);
- an increase in the zero band threshold for the charge on new commercial leases with a net present value of up to £150,000;
- VAT will be excluded from the chargeable sum unless the landlord has already elected to charge it. This reverses the current position, under which it is charged unless the landlord has specifically opted not to charge.
Additionally, with immediate effect, stamp duty will be abolished on commercial property transfers in disadvantaged areas (a list of which is available on the Inland Revenue website). A Statement of Practice has been published by the Inland Revenue to provide further guidance on the subject. Further consultation will follow on possible changes to the commercial property regime.
A number of changes to the clawback of group relief provisions introduced in the 2002 Budget have been introduced with immediate effect. The provisions will now apply where a transferring company leaves the group within three years (instead of two). Additionally a company will no longer be able to avoid the charge by transferring the property on to a connected party which is also being disposed of with it, and changes are made to ensure that duty is paid where land is reacquired by the original company.
Planning in these circumstances will become more important if transactions are not to fall foul of the new rules.
Important - The information in this article is provided subject to the disclaimer. The law may have changed since first publication and the reader is cautioned accordingly.