The States of Guernsey 2012 Budget Report contains a section advising of proposals to introduce legislation enabling the States to recover document duty at 3% on the transfer for value of any interest in any legal entity which owns, either directly or indirectly, real property in Guernsey.

Currently, individual purchasers pay document duty as a percentage of a property's value. If the proposals come into effect by the estimated date of 1 January 2014 the loophole that exists, in which purchasers of companies owning open market dwellings can take advantage of the absence of duty on share sales, will end.

The proposal is similar to that of Jersey's Land Transaction Tax Regime, which ensures equality of tax rate on sales by share transfer as for domestic land.

It is intended that the new regime will go beyond simply imposing duty on transfers of shares so that duty will be levied on transfers of interests in trusts, foundations, limited partnerships and other real property owning legal entities.

The obligation to pay duty will relate to transfers of entities that own both residential and commercial property.

The intention is that the transferor and transferee will both be under a duty to notify the States of Guernsey of changes in ownership of shares and other relevant interests in legal entities which own real property and pay the duty owing.

Liability for payment of the duty will be placed on both transferor and transferee but with a provision for the transferee to indemnify the transferor for any duty paid by the latter. There will be penalties for failure to notify the States where a relevant transaction has taken place.

There will be provision for exemptions to be prescribed by Ordinance.

My hope is that exemptions will include, for example, the transfer of shares in entities that own real property in Guernsey that are quoted on a recognised stock exchange and the transfer of interests in any entity whose principal activity is not the ownership of real property but which happens to own Guernsey real property.

I expect there will be some method of valuing the real property owned by an entity, which also owns other assets, in order to calculate the duty payable.

The introduction date of the new law will depend on the priority given to its drafting by the Policy Council but it is intended that the new regime will be in place no later than 1 January 2014.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.