Stamp of approval

There have always been several ways in which organisations can lower or even eliminate their stamp duty obligations, but the 2011 Budget saw the introduction of new rules that clarify exactly which stamp duty avoidance schemes that have been used in the past now no longer work.

More specifically, the measures in question affect the alternative finance reliefs, the regulations regarding sub-sales and land exchanges, which may have already had an effect on planning for stamp duty for commercial property as the new rules were officially launched on March 24th.

They make it clear that the legal stipulations for sub-sales and alternative property finance reliefs are unable to be combined to completely mitigate stamp duty obligations when buying an interest in land.

Furthermore, purchasers cannot use the alternative property finance reliefs to set up as an organisation that qualifies as a financial institution through the acquisition of a Consumer Credit Licence – which has been relatively easy to procure in the past.

The final change to the legislation makes it impossible for the market value of acquired land in exchange agreements to be manipulated to avoid paying stamp duty. Prior to 2003, stamp duty was only levied on land exchanges as an equalisation payment, but the rules introduced after this time attempted to ensure the correct taxation of such transactions by looking at the market value of the purchased land.

So how do these changes affect planning and how might they shape future strategies to reduce obligations associated with the tax?

Perhaps the most obvious point is that those organisations that were previously reliant on combining the sub-sales and alternative finance rules to reduce stamp duty payments will now need to look for other strategies, such as taking advantage of reliefs relating to transfers between two entities in the same group, reconstruction and acquisition or the notable exemptions for certain elements of specific property development initiatives.
It is not yet clear whether related stamp duty planning that was executed before the Budget will still stand, so companies may need to consult tax experts to assess their situation and see what other steps they might be able to take, as there are still several alternatives available that may be viable.

And with the government clearly looking to clamp down on certain types of commercial stamp duty avoidance to avoid losing revenue – HM Revenue & Customs made comments about the rules surrounding sub-sales last summer – firms might also have to reassess their options for the longer term.

In the current financial climate, any future changes to stamp duty tax legislation are likely to be made with the aim of preventing buyers from attempting to lower their stamp duty obligations when they should be paying the full amount.

Of course, the majority of organisations that engage in stamp duty planning do so to ensure they pay no more than they actually need to, rather than out of a desire to manipulate the system, but new amendments to the rules will likely affect everyone regardless.

Taking the advice of a tax planning expert can help companies to fully understand the rules and check that they pay no more than is needed, as well as formulate a long-term strategy for dealing with any future changes to the law or commercial stamp duty rates.