The BPF has warned that “continued care” is needed if property companies are to limit their stamp duty liabilities, despite new guidance from the Stamp Office.
The guidance attempts to clarify what is liable for the full 3% rate of duty when property is transferred within a group. One way of reducing tax liability on a property sale is to set up a special purpose vehicle (SPV) within the company, to which the property in question is transferred. Instead of trading the property, which would be taxed at 3%, shares in the property are transferred to the SPV. These are then subject to 0.5% tax.
The new guidance says that relief will be refused where there is evidence of plans to sell on the SPV. Schemes involving intra-group leases, followed by the sale of the superior interest, could also still come under attack.
On the positive side, the Stamp Office has extended relief to include loans, which involve “straightforward finance on ordinary commercial terms”. Under the old system, only unsecured bank loans provided for “general purposes” were entitled to relief.
Despite the clarifications, the BPF has warned that “continued care is necessary” as the Stamp Office will continue to be suspicious of attempts to reduce stamp liability from 3% to 0.5% through SPVs.
BPF’s Anthony Brittain said: “If negotiations with a purchaser have commenced at the time of the intra-group transfer it is likely that relief will be refused, particularly if the eventual disposal is completed before a claim is settled.”
He argues that it would therefore be a good idea to complete the transfer as early as possible, “ideally before negotiations have commenced with a single potential purchaser”.
PLS News 25/11/98
