The 1999 Finance Act introduced new measures in respect of stamp duty. These measures came into effect on 1st October 1999 and include:
- increasing the minimum duty to £5
- rounding up the duty payable to the nearest £5
- introducing an interest charge on late payments
- increasing the level of penalties.
Each of these measures is considered in more detail below. There are also sections dealing with amendments to the rules in certain specific situations, namely on agreements for lease and agreements for sale stampable pursuant to section 59 Stamp Act 1891.
Increasing the minimum duty to £5
On 1st October 1999 all fixed duties were raised to £5. This affects a number of different types of instruments, such as:
- documents which used to attract 50p fixed duty, such as declarations
of trust, duplicates and transfers to a nominee
- documents which currently attract amounts of less than 50p, such as
leases (and their counterparts) with very low rents
- fixed duties over 50p, such as agreements for the letting of a furnished
flat/house for a term of less than 1 year (which used to attract £1)
The Stamp Office’s intention is that the introduction of the new minimum level of £5 will simplify stamp duty, making it easier to work out and understand.
Rounding up the duty payable to the nearest £5
In the past stamp duty has been expressed as a ratio rather than a percentage so that rates used to be expressed as, for example,. £3.50 per £100 or £6 per £50. As a result the amount payable was effectively rounded up to the nearest £3.50 or £6 as appropriate.
From 1st October 1999, the rate of duty will be expressed as a percentage figure which will be rounded up to the next £5. In the case of leases with a rent and a premium, duty on these two amounts will be added together and the total will be rounded up. Two examples given by the Stamp Office are as follows:
A conveyance is completed with a consideration of £551,290. The stamp duty was expressed as £3.50 per £100 or part of £100 (ie £19,295.50). Under the new method of calculation, the stamp duty is simply 3.5% of £551,290 = £19,295.15 rounded up to the nearest £5 = £19,300.
A lease is granted for a term of 99 years with a rent of £175 plus a premium of £68,950. On the old basis of calculation, duty on the rent was expressed as being £6 per £50 or part of £50 (ie £24) and the duty on the premium element was expressed as being £1 per £100 or part of £100 (ie £690). Therefore the total duty (on the old basis) was £24 + £690 = £714. On the new basis of calculation, the duty on the rent is now worked out as 12% of £175 (ie £21) and the duty on the premium element is now worked out as 1% of £68,950 (ie £689.50) Therefore the total duty (on the new basis) is £21 + £689.50 = £710.50, rounded up to the next £5 = £715.
Introducing an interest charge on late payments
There is a 30 day time limit from the date of execution for getting documents stamped. If documents are not presented to the Stamp Office with the correct amount of duty within this time limit, interest (and perhaps also penalties - see below) will be due.
The amount of interest due depends on the amount of the stamp duty and the lateness of the payment and a standard rate of interest (initially set at 7.5%) is applied in working out the charge. The interest is rounded down where necessary to the nearest £5. There is a minimum limit of £25 and if the amount of interest due is calculated as being less than £25, it need not be paid.
Interest will be charged on all documents presented late, regardless of whether or not the document was executed in the UK. Accordingly, in the case of a document executed outside the UK, interest will start to run 30 days after the date of execution and not 30 days after the document is brought into the UK.
Despite this change, execution or retention of documents offshore still remains a method of stamp duty mitigation. Ultimately, the decision as to whether to execute and retain offshore or not will be a commercial one that takes into the account the likelihood of the document having to be brought into the UK against the requirement to pay interest.
There is no mitigation of interest charges and the full amount will always be payable. Any interest paid is not deductible in computing the payer’s income or profits for tax purposes.
Finally, interest will start to run 30 days after the date of execution regardless of whether the relevant document has been submitted to the Stamp Office for adjudication. Accordingly, unless it is anticipated that adjudication will be made within the 30 day period, it will be necessary to estimate the amount of stamp duty due and pay it at the time of submission of the document for adjudication so as to avoid interest accruing.
Increasing the level of penalties
Penalties will still apply when documents are presented late, that is within 30 days of execution (if executed in the UK) or (for documents executed abroad) within 30 days of first being brought into the UK. If a penalty is due, the basic penalty regime is as follows:
- If the document is up to 1 year late, the maximum penalty is an amount
equal to the duty or £300 (whichever is less)
- If the document is more than 1 year late the maximum penalty is an
amount equal to the duty or £300 (whichever is greater)
The Stamp Office has the authority to reduce penalties if appropriate, taking account of any special mitigating circumstances. They have produced a table which provides details of the way in which they mitigate penalties.
As mentioned above, no penalty will be charged on documents executed abroad provided that they are presented for stamping within 30 days of being brought into the U.K. However, please remember that interest will apply from 30 days after execution of the document, wherever it is executed.
Agreements for lease
Where an agreement for lease is presented for stamping at the same time as the lease, the Stamp Office consider the date of the lease as being the effective date in working out any penalty or interest. Provided that the agreement for lease and the lease itself are presented together within 30 days of the date of the lease, and the correct amount of duty is paid, no penalty or interest is due.
Agreements for sale
Before 1st October 1999, penalties have been calculated differently on agreements for sale which are chargeable under section 59 Stamp Act 1891 (eg business sale agreements and agreements for the sale of an equitable interest in property). The new measures will bring such agreements in line with all other documents and in future they will be subject to the same penalty and interest rules.
It is now less likely that clients would wish simply to take the decision not to stamp a section 59 Stamp Act 1891 agreement executed in the UK. Under the old regime, the penalty for not stamping equated to a 5% per annum interest rate; a return that most clients would expect to better by employing the amount of stamp duty in their own business. The penalties and interest under the new regime are now more onerous.
For further advice please contact either Mark Nichols on 0171 367 2051 (mbn@cms-cmck.com) or Richard Croker on 0171 367 2149 (radc@cms-cmck.com).
