A number of changes to stamp duty were announced, the most important of which are as follows:-
STAMP DUTY RATES
The rates of Stamp Duty on transfers of property (excluding shares) for more than £250,000 will be increased.
The new rates will be:
■ 3 per cent where the price is more than £250,000 but not over £500,000;
■ 4 per cent where the price exceeds £500,000.
The Chancellor's proposal will apply to transfers on or after 28 March, except for transfers made in pursuance of a contract made on or before 21 March.
There will be no change either to the £60,000 threshold, up to which transfers are free of Stamp Duty; or to the 1 per cent rate which applies to transfers between £60,000 and £250,000. The 0.5 per cent rate of duty on transfers of shares is also unaffected by these proposals.
The new rates will apply to lease premiums as they already do for sales of freeholds.
The threshold for the Stamp Duty charge on the annual rent for new leases of up to seven years (or of indefinite term) is to increase from £500 to £5,000.
OTHER BUDGET PROPOSALS
■ New Stamp Duty reliefs will apply for transfers and leases of land and buildings to Registered Social Landlords eg. housing associations.
■ The Government may offer relief from Stamp Duty for the first sale of property developed on appropriate brownfield sites. Consultation will take place to determine the feasibility of this.
■ Transactions in intellectual property will be exempted from Stamp Duty.
■ Five devices are to be stopped which promote Stamp Duty avoidance. These generally are used by companies dealing in commercial property.
The fixed stamp duties, mostly 50p, were increased to £5 last year and no change has been proposed this year. These are duties on certain transactions other than sales – for example, declarations of trust, duplicates, and transfers to a nominee.
STAMP DUTY: UNIT TRUSTS AND OPEN-ENDED INVESTMENT COMPANIES
Although there were no new proposals made in this years Budget as the stamp duty changes for OEICs and unit trusts introduced last year only came into effect from 1st October 1999 it was thought to be worthwhile restating them here.
The stamp duty regime, which dates from 1946, had for some time charged Stamp Duty at 0.5 per cent on all surrenders of units to the trust managers. If the manager resells the unit to a new investor there is no further 0.5 per cent charge. This means that there is a single 0.5 per cent Stamp Duty charge on a transfer between two investors, as there is when shares in a company are transferred between two investors – either directly or via a market maker.
But where the surrendered units cannot be sold to other investors within two months, the trust managers may claim a refund of the 0.5 per cent duty provided that as a consequence they dispose of a corresponding amount of the trust's underlying assets and cancel the units. This avoids a double charge to Stamp Duty as the sale of underlying assets normally attracts a Stamp Duty charge in its own right.
The regime prior to last years changes was thought to be complex to operate as every individual surrender is physically stamped and every individual reclaim needs to be associated with a consequential disposal of fund assets. And the regime has been called into question by a decision of the High Court.
The new stamp duty reserve tax (SDRT) regime was introduced for dealings in units in unit trust schemes. The new regime is thought to be straightforward to administer and paved the way for the electronic trading of units, while maintaining a broadly consistent approach between dealings in units and dealings in shares.
The Government's objective is that Stamp Duty should be applied to dealings in units on a broadly consistent basis compared with dealings in shares. This then avoids any Stamp Duty incentive to trade in units rather then directly in shares and securities.
These changes apply to transfers of units in unit trust schemes on or after 1 October 1999. The Government has brought in Regulations to introduce an equivalent regime for dealings of shares in open-ended investment companies (OEICs) from the same date.
Sometimes unit holders are able to take some of the trust's underlying assets in return for redeeming their units rather than taking cash. These are known as in specie redemptions, and generally occur with large institutional investors in unauthorised unit trusts. Such transactions are excluded from the count of surrenders for the purposes of the SDRT charge set out above.
For certain in specie redemptions there will be an SDRT charge on the manager. Where the investor takes a basket of shares in the same proportions as the investments of the unit trust as a whole (a pro-rata redemption) there will not be any SDRT charge. This is because there is no material change in the nature of the assets owned by the investor. But where the in specie redemption is not pro-rata there will be a 0.5 per cent charge on the whole amount.
Since, in appropriate cases, the SDRT charge applies to the manager, a parallel provision will ensure that there is no charge on an investor in respect of the transfer of assets under an in specie redemption (whether or not pro rata).