On 18 October 2017, the Government received Sanction from the UK Privy Council to The Document Duty (Anti-Avoidance) (Guernsey) Law, 2017 and the Document Duty (Guernsey) Law, 2017 which had previously been approved by the States on 29 March 2017. The legislation will now come into force with effect from 15 November 2017.
The new regime will replace the existing legislation (the Document Duty (Guernsey) Law, 1973 and the Document Duty (Guernsey) Ordinance, 2003) and will impose a duty on transfers of interests in real property that do not involve a registered conveyance and so do not attract a charge to Document Duty.
In brief, Document Duty on graduated rates from 2% to 4% is applied depending on the value of transfers in interests in Guernsey property conveyed and on the registration of bonds securing loans on real property.
The current rates of Duty are:
- 2% on the first £250,000 of the transaction value
- 3.25% on the portion of value between £250,001 and £400,000
- 3.5% on the portion of value between £400,001 and £750,000
- 3.75% on the portion of value between £750,001 and £1,000,000
- 4% on the portion of value exceeding £1,000,000
The duty is payable by the purchaser. However, until 15 November 2017 it is possible to avoid the charge if the property is owned by limited companies and the property transfer is dealt with by the sale of shares in the company to a new beneficial owner. No property conveyance is registered and therefore no document duty is payable.
Consequently, it has in the past been popular for higher value local real estate to be held through limited companies. The option to sell the company owning the property, rather than the property itself, long proved to be a valuable selling point as the overall cost to the purchaser can be significantly reduced as a result. It is often the case that this saving can effectively be shared with the vendor through negotiation of a higher sales price.
The new legislation removes the perceived inequity between the sale of real estate and the sale of shares in a company. The tax will be charged at the same rate as that applied under document duty regulations noted above. The charge will be calculated according to whether the transaction is made on arm’s length commercial terms or otherwise that on an arm’s length basis.
If the transaction is made on an arm’s length basis, the Duty payable will be based on the stated consideration or on the amount secured against the property and chargeable at the rates outlined above. Both parties to the transaction will be required to file a declaration (normally included within the document) confirming that the consideration stated in the document is the total consideration for the transaction.
If the transaction is made otherwise than on arm’s length commercial terms, the amount of duty payable will be based on the market value of the property transferred or of the sum secured on it. The parties to the transaction will be under a duty to file a declaration stating the market value of the property. HM Greffier* will have powers to request further evidence to be supplied to assess the amount of Document Duty properly payable, although in practice, where there is some doubt over the valuation, the party wishing to register the document will discuss the matter with HM Greffier in advance of the transaction. There will be provision for appeals to be Royal Court against decisions HM Greffier and the legislation creates offences in relation to the making of false or misleading statements, including those made by directors and officers of corporate bodies.
Examples of Document Duty payable for certain transactions are as follows:
Value of conveyance Document Duty Payable
The regulations will also cover transactions involving foundations, trusts, partnerships and companies limited by guarantee.
Whilst introducing this anti-avoidance measure, there are a number of exemptions to the charge including:-
- The transfer of property, or of an interest in property, which arises by inheritance, lease and licensing arrangements or a transfer of an interest by way of security for a loan.
- Transfers arising as a result of a court order, for instance a vesting order made in matrimonial proceedings, administration orders made in respect of the estate of a deceased property owner and orders made in saisie proceedings.
- Transfers in favour of, or a charge against the real property of, a charity, friendly society, affordable housing provider or the States of Guernsey.
- Transactions involving rights of way, wayleaves and other similar rights attaching to land.
- Transfers concerning companies where the ultimate beneficial ownership is not affected.
- Transfers between partnerships where the partners and their respective partnership shares are the same before and after the transaction.
- A transfer of shares in a public listed company and transfers by or on behalf of collective investment schemes.
- Transfers of property by a settlor into a trust, transfers between trusts or by a trustee to a beneficiary of a trust.
- Transfers of property to the beneficial owner (for instance, if as a result of the new provisions, it was no longer considered appropriate or cost effective for the property to be held in a company) or transfers between “connected” companies.
- Certain transfers of shares in a company interest in a partnership where the principal use of the real property in respect of which the significant benefit arises, is for the purpose of a business, trade or undertaking operated by that company, subsidiary or partnership.
- Transfers within a family, for instance between spouses, cohabiters or other family members.
- Transfers to charitable organisations, housing associations, friendly societies or the States of Guernsey.
It should be noted that anti-avoidance provisions would apply to all exemptions in order to combat abuse.
Previously, transfers that have been potentially liable to a charge where there has been no change in ultimate beneficial ownership have been conveyed for nominal value subject to the agreement of HM Greffier on a case by case basis to avoid the charge. The introduction of some of the exemptions listed above, such as transfers between associated companies within the same group, means that it will now be possible to effect the transfer at market value, thereby resolving any conflict with reporting under financial accounting standards.
The charge will be administered by way of self-assessment and all parties to the transaction will be jointly liable to submit the self-assessment document and to pay the duty within a certain period from the date of the transaction. Where it is established that false or misleading statements have been made, HM Greffier has power to amend the amount of document duty payable and this could also, in the case of fraudulent evasion, lead to a criminal prosecution.
Enforcement of the scheme will be the responsibility of the Director of Income Tax who will handle enquiries in relation to liability to pay the duty, or the imposition of penalties for unpaid duty and appeals against assessments.
* HM Greffier (Her Majesty’s Greffier) is appointed by warrant of the Sovereign and has a number of roles. He is the Clerk of the Royal and Magistrate's Courts, Registrar of the Guernsey Court of Appeal and Clerk and Registrar of the States of Deliberation and States of Election. He is also registrar of property transactions in Guernsey.