Stamp Duty Changes
In the last edition of Tax Insight, we focused on the announcement made by the Chancellor in his pre-Budget statement that the Government was considering additional measures in the area of stamp duty compliance. The indications were that the interest and penalty provisions intended to deal with stamp duty non-compliance would be strengthened in order to deal in particular with the "voluntary" nature of stamp duty and, in addition, the "loophole" allowing documents executed and held offshore to avoid penalties and interest for late stamping.
As the press releases accompanying the recent Budget confirmed, the Finance Bill contains detailed provisions which overhaul the interest, penalty and (to a certain extent) the appeals procedure in particular, along with other changes that the Government has indicated are "administrative" in nature (although this is debatable!) What is perhaps surprising however is that some of the provisions appearing in the Finance Bill intended to address compliance issues may have less of a sting than was feared by many practitioners.
Compliance
The current position is that penalties and interest for late stamping of a document run from the date that is thirty days after the date of execution of the document, except where the document has been executed and held offshore. In the latter case, the thirty day period starts to run from the date that the document is brought into the UK.
As we commented in the last edition of Tax Insight, these rules have allowed purchasers of assets (other than shares/securities) to defer the payment of stamp duty in some situations until such time as it becomes clear that there is a need to enforce the document in question. If the document has been executed and held offshore until that time, penalties and interest can be avoided.
The Finance Bill sets out new provisions under which interest on unpaid stamp duty will run from the date that is thirty days after the date of execution of a document, whether the document was executed in the UK or elsewhere. Executing and holding a document offshore will therefore no longer be effective to prevent interest from running in respect of stamp duty paid late.
Perhaps surprisingly, however, penalties for the late payment of stamp duty will continue to run from the date that is thirty days after the date of execution of an instrument (where it is executed in the UK) or thirty days after the day on which it is first brought into the UK (where the instrument is executed outside the UK). Unlike the interest charge therefore, the penalty charge will not affect documents executed offshore unless they are not stamped within thirty days of the date they are brought into the UK. This means that the interest charge will be the only deterrent against the continuing practice of executing and holding documents offshore.
The Finance Bill also provides that the interest rate will in future be set under section 178 Finance Act 1989 (a general provision for setting the rates of interest on tax paid late). Whether or not a taxpayer takes the view that the risk of interest arising on stamp duty paid late is one worth taking will of course depend upon the circumstances of a particular case. However, taxpayers who believe that there is little likelihood of them needing to bring a document into the UK to enforce or register it, or who consider that they are likely to be able to obtain a competitive return on the money they would otherwise have committed to stamp duty may still consider it worthwhile to execute and hold documents offshore as they have done in the past.
One other piece of good news is that the new provisions described above will apply only to documents executed on or after 1 October 1999. Until the publication of the Finance Bill, there was a concern that these provisions might contain an element of retrospection, and potentially catch documents currently held offshore. These fears have now been dispelled.
The Government has also taken the opportunity in the Finance Bill to update and overhaul the penalty system more generally. Part of this involves their stated objective of bringing penalties up to more realistic modern levels. Penalties for late stamping for example are set at the lesser of the amount of unpaid duty or £300 where the instrument is presented for stamping within one year of the end of the relevant thirty day period. However, if an instrument is presented for stamping outside this time period, the penalty is potentially the greater of the amount of the unpaid duty or £300. This could mean significant additional costs if documents are not submitted for stamping within one year and thirty days of their execution. It is worth mentioning that penalties for late stamping will be subject to mitigation if the Inland Revenue thinks fit.
Further, no penalty will be payable if there is a "reasonable excuse" for the delay in presenting the instrument for stamping. As a practical matter, it will be interesting to see whether the Stamp Office will publish any guidance as to what they may consider to be a reasonable excuse for a failure to present a document for stamping within the relevant time period.
On an administrative level, taxpayers will be able to require the Stamp Office to formally adjudicate the level of penalties for late stamping (or indeed whether any such penalty should be charged in a given circumstance). If the taxpayer is dissatisfied with the result of an adjudication (whether in relation to the chargeability of the document generally or in relation to the penalty imposed) the taxpayer will have a right of appeal to the High Court.
This is consistent with the historic appeals procedure in stamp duty cases, which is to the High Court by way of case stated. However, in cases where tax mitigation in particular may be in issue, this procedure can prove unsatisfactory, given the absence of both an independent tribunal to make a finding of facts at a level below the High Court and of direct evidence and cross examination. This means that it is often uneconomic and administratively difficult for a taxpayer to appeal stamp duty adjudications, however well founded their arguments may be in principle.
The Finance Bill does introduce one new possible line of appeal in limited circumstances however. Where the appeal relates only to the penalty payable for late stamping, it will (in relation to instruments executed from October this year) be possible for the taxpayer to bring the appeal before the Special Commissioners of the Inland Revenue. There will be a further right of appeal (for the taxpayer only) to the High Court if necessary.
The introduction of a right of appeal to the Special Commissioners is to be welcomed as although proceedings before the Special Commissioners are formal, full facts can be adduced and findings of facts can be made. However, it should be noted that this new right of appeal to the Special Commissioners extends only to the amount of any penalty (and not to the underlying assessment of duty made by the Stamp Office). One wonders whether the opportunity could have been taken to widen the availability of appeals to the Special Commissioners against adjudication more generally, which would have opened up the possibility of taxpayers being in a position to challenge more readily the Stamp Office's assessment of duty in relevant cases.
In particular, it remains the case that appeals cannot be made in respect of stamp duty assessments unless the relevant stamp duty, together with any applicable interest and penalties, has first been paid. This is particularly interesting in the light of the Chancellor's "compatibility" statement on the cover sheet of the Finance Bill. Some commentators have suggested that this restriction to the right to appeal may be a contravention of Article 6 of the European Convention.
One final point on the subject of penalties is that the regime in relation to agreements for lease presented for stamping at the same time as the leases executed in pursuance of those agreements has been tightened up. Agreements for lease are stampable, but no penalty is currently payable if the agreement is presented for stamping at the same time as the lease and within thirty days of execution of the lease. The Finance Bill introduces a long stop period of six months after the date of execution of an agreement for lease after which interest will be payable in relation to late stamping of that agreement, even where presented with the lease within thirty days of execution of the lease.
Roundings and Small Duty Changes
The Finance Bill also sets out the new rounding provisions that will apply when calculating the amount of stamp duty payable in respect of a document. Again, these changes will apply from 1 October 1999. Currently, the consideration for a document stamped by reference to its value should be rounded to the nearest whole £100 (or £50 in relation to lease duty) in order to calculate the amount of duty payable. For example, duty may be payable at the rate of £1.00 per £100 or part thereof. From 1 October 1999, stamp duty will be expressed as a straightforward percentage of the consideration and coupled with this change will be a new system of roundings, under which stamp duty will always be rounded upwards to a multiple of £5. In addition, the various fixed stamp duties (mostly £0.50) will be increased to £5.
A further point which emerges from the Finance Bill (and which was what not apparent in the Budget Press Release) is the sweeping away of most of the small rates of duty payable in relation to rental payments on leases not exceeding £500 per annum. From October this year, the rate of duty applicable to rental payments will (except in relation to leases for a term of less than seven years or indefinite terms) depend only upon the length of the term of the lease and not upon whether or not the rent is less than £500 per annum.
Whilst these changes may seem to be de minimis, one suspects that they are in aggregate likely to increase the stamp duty revenue to the Treasury considerably. In particular, taxpayers will need to take care not to be caught out by the new methods of calculation of stamp duty.
One final point: the changes proposed in the Finance Bill are to be implemented by substantial redrafting of and substitution of some of the existing legislative provisions relating to stamp duty. This inevitably involves slight changes to the wording of some of the relevant provisions. The extent to which this will raise new points or practical issues going forward remains to be seen.
For further information please contact Fiona Sutherland, e-mail: Click Contact Link , 7 Devonshire Square, Cutlers Gardens, London, EC2M 4YH, UK, Tel: + 44 171 655 1000
This article was first published in the Tax News - Special Finance Bill Edition issue of Hammond Suddards Tax News updates
The information and opinions contained in this article are provided by Hammond Suddards. They should not be applied to any particular set of facts without appropriate legal or other professional advice.
In the last edition of Tax Insight, we focused on the announcement made by the Chancellor in his pre-Budget statement that the Government was considering additional measures in the area of stamp duty compliance. The indications were that the interest and penalty provisions intended to deal with stamp duty non-compliance would be strengthened in order to deal in particular with the "voluntary" nature of stamp duty and, in addition, the "loophole" allowing documents executed and held offshore to avoid penalties and interest for late stamping.
As the press releases accompanying the recent Budget confirmed, the Finance Bill contains detailed provisions which overhaul the interest, penalty and (to a certain extent) the appeals procedure in particular, along with other changes that the Government has indicated are "administrative" in nature (although this is debatable!) What is perhaps surprising however is that some of the provisions appearing in the Finance Bill intended to address compliance issues may have less of a sting than was feared by many practitioners.
Compliance
The current position is that penalties and interest for late stamping of a document run from the date that is thirty days after the date of execution of the document, except where the document has been executed and held offshore. In the latter case, the thirty day period starts to run from the date that the document is brought into the UK.
As we commented in the last edition of Tax Insight, these rules have allowed purchasers of assets (other than shares/securities) to defer the payment of stamp duty in some situations until such time as it becomes clear that there is a need to enforce the document in question. If the document has been executed and held offshore until that time, penalties and interest can be avoided.
The Finance Bill sets out new provisions under which interest on unpaid stamp duty will run from the date that is thirty days after the date of execution of a document, whether the document was executed in the UK or elsewhere. Executing and holding a document offshore will therefore no longer be effective to prevent interest from running in respect of stamp duty paid late.
Perhaps surprisingly, however, penalties for the late payment of stamp duty will continue to run from the date that is thirty days after the date of execution of an instrument (where it is executed in the UK) or thirty days after the day on which it is first brought into the UK (where the instrument is executed outside the UK). Unlike the interest charge therefore, the penalty charge will not affect documents executed offshore unless they are not stamped within thirty days of the date they are brought into the UK. This means that the interest charge will be the only deterrent against the continuing practice of executing and holding documents offshore.
The Finance Bill also provides that the interest rate will in future be set under section 178 Finance Act 1989 (a general provision for setting the rates of interest on tax paid late). Whether or not a taxpayer takes the view that the risk of interest arising on stamp duty paid late is one worth taking will of course depend upon the circumstances of a particular case. However, taxpayers who believe that there is little likelihood of them needing to bring a document into the UK to enforce or register it, or who consider that they are likely to be able to obtain a competitive return on the money they would otherwise have committed to stamp duty may still consider it worthwhile to execute and hold documents offshore as they have done in the past.
One other piece of good news is that the new provisions described above will apply only to documents executed on or after 1 October 1999. Until the publication of the Finance Bill, there was a concern that these provisions might contain an element of retrospection, and potentially catch documents currently held offshore. These fears have now been dispelled.
The Government has also taken the opportunity in the Finance Bill to update and overhaul the penalty system more generally. Part of this involves their stated objective of bringing penalties up to more realistic modern levels. Penalties for late stamping for example are set at the lesser of the amount of unpaid duty or £300 where the instrument is presented for stamping within one year of the end of the relevant thirty day period. However, if an instrument is presented for stamping outside this time period, the penalty is potentially the greater of the amount of the unpaid duty or £300. This could mean significant additional costs if documents are not submitted for stamping within one year and thirty days of their execution. It is worth mentioning that penalties for late stamping will be subject to mitigation if the Inland Revenue thinks fit.
Further, no penalty will be payable if there is a "reasonable excuse" for the delay in presenting the instrument for stamping. As a practical matter, it will be interesting to see whether the Stamp Office will publish any guidance as to what they may consider to be a reasonable excuse for a failure to present a document for stamping within the relevant time period.
On an administrative level, taxpayers will be able to require the Stamp Office to formally adjudicate the level of penalties for late stamping (or indeed whether any such penalty should be charged in a given circumstance). If the taxpayer is dissatisfied with the result of an adjudication (whether in relation to the chargeability of the document generally or in relation to the penalty imposed) the taxpayer will have a right of appeal to the High Court.
This is consistent with the historic appeals procedure in stamp duty cases, which is to the High Court by way of case stated. However, in cases where tax mitigation in particular may be in issue, this procedure can prove unsatisfactory, given the absence of both an independent tribunal to make a finding of facts at a level below the High Court and of direct evidence and cross examination. This means that it is often uneconomic and administratively difficult for a taxpayer to appeal stamp duty adjudications, however well founded their arguments may be in principle.
The Finance Bill does introduce one new possible line of appeal in limited circumstances however. Where the appeal relates only to the penalty payable for late stamping, it will (in relation to instruments executed from October this year) be possible for the taxpayer to bring the appeal before the Special Commissioners of the Inland Revenue. There will be a further right of appeal (for the taxpayer only) to the High Court if necessary.
The introduction of a right of appeal to the Special Commissioners is to be welcomed as although proceedings before the Special Commissioners are formal, full facts can be adduced and findings of facts can be made. However, it should be noted that this new right of appeal to the Special Commissioners extends only to the amount of any penalty (and not to the underlying assessment of duty made by the Stamp Office). One wonders whether the opportunity could have been taken to widen the availability of appeals to the Special Commissioners against adjudication more generally, which would have opened up the possibility of taxpayers being in a position to challenge more readily the Stamp Office's assessment of duty in relevant cases.
In particular, it remains the case that appeals cannot be made in respect of stamp duty assessments unless the relevant stamp duty, together with any applicable interest and penalties, has first been paid. This is particularly interesting in the light of the Chancellor's "compatibility" statement on the cover sheet of the Finance Bill. Some commentators have suggested that this restriction to the right to appeal may be a contravention of Article 6 of the European Convention.
One final point on the subject of penalties is that the regime in relation to agreements for lease presented for stamping at the same time as the leases executed in pursuance of those agreements has been tightened up. Agreements for lease are stampable, but no penalty is currently payable if the agreement is presented for stamping at the same time as the lease and within thirty days of execution of the lease. The Finance Bill introduces a long stop period of six months after the date of execution of an agreement for lease after which interest will be payable in relation to late stamping of that agreement, even where presented with the lease within thirty days of execution of the lease.
Roundings and Small Duty Changes
The Finance Bill also sets out the new rounding provisions that will apply when calculating the amount of stamp duty payable in respect of a document. Again, these changes will apply from 1 October 1999. Currently, the consideration for a document stamped by reference to its value should be rounded to the nearest whole £100 (or £50 in relation to lease duty) in order to calculate the amount of duty payable. For example, duty may be payable at the rate of £1.00 per £100 or part thereof. From 1 October 1999, stamp duty will be expressed as a straightforward percentage of the consideration and coupled with this change will be a new system of roundings, under which stamp duty will always be rounded upwards to a multiple of £5. In addition, the various fixed stamp duties (mostly £0.50) will be increased to £5.
A further point which emerges from the Finance Bill (and which was what not apparent in the Budget Press Release) is the sweeping away of most of the small rates of duty payable in relation to rental payments on leases not exceeding £500 per annum. From October this year, the rate of duty applicable to rental payments will (except in relation to leases for a term of less than seven years or indefinite terms) depend only upon the length of the term of the lease and not upon whether or not the rent is less than £500 per annum.
Whilst these changes may seem to be de minimis, one suspects that they are in aggregate likely to increase the stamp duty revenue to the Treasury considerably. In particular, taxpayers will need to take care not to be caught out by the new methods of calculation of stamp duty.
One final point: the changes proposed in the Finance Bill are to be implemented by substantial redrafting of and substitution of some of the existing legislative provisions relating to stamp duty. This inevitably involves slight changes to the wording of some of the relevant provisions. The extent to which this will raise new points or practical issues going forward remains to be seen.
For further information please contact Fiona Sutherland, e-mail: Click Contact Link , 7 Devonshire Square, Cutlers Gardens, London, EC2M 4YH, UK, Tel: + 44 171 655 1000
This article was first published in the Tax News - Special Finance Bill Edition issue of Hammond Suddards Tax News updates
The information and opinions contained in this article are provided by Hammond Suddards. They should not be applied to any particular set of facts without appropriate legal or other professional advice.
