duty will be levied when a deal is 'substantially performed' under regime changes to be introduced on 1 december 2003
Property investors will no longer be able to avoid stamp duty on purchases under regime changes to be introduced on 1 December 2003.
Subject to the passing of this year's Finance Bill, the tax is to be levied when a deal is 'substantially performed' from 1 December.
Substantially performed in this context means payment of most of the purchase price or taking possession of the property.
The charge is currently levied at the point of actual completion, allowing companies to agree to deals and make payments but avoid the stamp duty charge, 4% on properties over £500,000, by postponing completion.
Senior tax consultant at Berg Kaprow Lewis LLP David Young said this measure is part of the Revenue's attempts to cut down on stamp duty avoidance and also bring the somewhat antiquated stamp duty tax in line with current circumstances.
'At present, stamp duty literally involves stamping documents that refer to completion,' he added, 'and the Revenue is looking to transform the charge into a transaction based tax such as VAT or capital gains tax.'
Young said some institutions have exploited the existing loophole by 'resting on contracts', agreeing on deals and paying money but never effectively completing in order to avoid the potentially substantial stamp duty charge. Companies can do this by ceding properties to their own subsidiaries for example.
The Inland Revenue closed this loophole for properties worth over £10m in last year's Finance Bill, and this latest proposal will extend the legislation across the market.
Head of property strategy at Morley Fund Management Nick Mansley said this change is unlikely to have a major impact on retail property funds, as exploiting this stamp duty tax loophole has primarily been the preserve of entrepreneurial specialist property companies.
He added: 'In my view, there have been very few instances of this practice in retail property funds. They are only likely to delay completion when buying properties in development for example, when there are typically a number of things to be resolved before completion is actually possible.' Managing director of Close Property Management Peter Roscrow said it would be extremely unlikely to find any such activity in retail property funds as the manager does not effect security on a property until completion and banks would be unwilling to take on such a risk.
Further alterations to the existing stamp duty regime in the recent Budget included an increase in the threshold at which property leases and transfers are liable to the tax, rising from £60,000 to £150,000 from 1 December this year.
Favorable tax treatment
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