Budget 2002: Implications for Real Estate

The good news: Stamp duty rate unchanged

The top rate of stamp duty which it was feared might be raised from 4% to 5% remains unchanged. Stamp duty on transfers of commercial property in deprived areas will be abolished altogether once state aid approval is obtained - Government will legislate in the Finance Bill.

The bad news: Loopholes closed

However, as predicted, the loopholes used by property investors to avoid stamp duty are to be closed. Legislation is to be introduced to discourage a range of techniques which have allowed investors in large commercial properties to escape paying stamp duty: -

group relief where UK property has been transferred from one company to another in the same group and within two years the company in receipt of the property leaves the group will be subject to ìclawbackî.

clawback will also be introduced for the partial relief available under section 76 Finance Act 1986, where a company acquires the whole or part of an undertaking of another company in exchange for shares in the acquiring company, and within two years control of the acquiring company passes to a third party.

penalties (on top of interest) will be imposed in respect of unpaid stamp duty on documents - relating to UK land or buildings executed outside the UK.

contracts for the sale of interests in land with a market value in excess of £10 million will be 'brought into charge' to tackle the avoidance of stamp duty where companies deliberately do not complete a transaction in the traditional way to avoid paying duty on the document that effectively transfers ownership of property. Further, a Consultation Document entitled Modernising Stamp Duty on Land and Buildings in the UK proposes changes to take effect next year.

Having looked at the proposed changes, the practical implications are as follows:

Where legal and beneficial ownership is split:- if the objective is to minimise stamp duty by selling the beneficial interest separately from selling a nominee company with the legal interest and the expected sale price is more than £10 million, aim to do this by Royal Assent to the Finance Bill which is expected by mid-to-late July.

Special purpose vehicle ownership:- if you have put the property (usually legal and beneficial interest) into an SPV with a view to minimising stamp duty by selling the SPV, aim to sell the SPV before the proposals...