To many the recent announcements of disappointing revenue
forecasts for 2013 from Guernsey's Treasury and Resources
Department ("Treasury and Resources"), in part due to a
reduction in document duty receipts (document duty generally being
the second-largest contributor to Guernsey's budgetary income
after income tax) will have come as little surprise.
The 2013 Budget Estimate for income from document duty (comprising both property conveyancing and mortgaging) was originally set at £18 million, although this was later reduced to £14.25 million, a net reduction of almost 21%. Treasury and Resources cites a combination of a weaker local economy and lower net levels of migration as the main reasons for the shortfall in document duty receipts and weaker market activity.
As at September 2013, document duty payable on conveyances of property – excluding conveyances by gift, exchanges of property, partages (a division of inherited property between co-heirs) and conveyances by way of délaissance (conveyances of interests in property between co-owners) was dependent on the value of the transaction being undertaken. In respect of a conveyance for a value of £150,000 or less, document duty was payable at a rate of 2% of such value. In respect of a conveyance for a value of between £150,001 and £250,000, document duty was payable at a rate of 2.5% of such value. A flat rate of 3% of the value of the Conveyance was set for all transfers above £250,000.
These thresholds and their corresponding rates were set in 2002, when the property market was more buoyant and when property prices were generally substantially less than they are today. Accordingly, as property prices have increased, so has the amount of document duty payable on all transactions, even though the scale of percentages payable has not changed in that time. As of June, 2013, the average price for a local market property was £457,642, equating to document duty payable of £13,729.26. In harder economic times, such a sum can be difficult for any purchaser to find, especially when one considers that this sum will need to be recouped when the purchaser eventually sells, so continuing the cycle of exponential (and relatively large) increases in house prices.
A New Stimulus
Treasury and Resources has recognised that a stimulus of the property market is required to increase document duty receipts. One of the most obvious and most expedient means of achieving this is by a reduction in the amount of document duty payable by buyers on property purchases. Treasury and Resources has therefore proposed the following increases in the document duty thresholds, as follows:-
- – 2%;
- on a conveyance where the value exceeds £250,000 but does not exceed £400,000 – 2.5%;
- on a conveyance where the value exceeds £400,000 – 3%.
Whilst the overall rates of duty have not changed, the levels at which such rates are payable, has increased, effectively putting more "lower value" properties into the lower rate duty bands. This will hopefully have the effect of assisting first-time buyers and those on lower incomes by reducing the duty they pay when buying their homes.
Short Term Measures
As an additional stimulus, Treasury and Resources has also recommended a temporary reduction, ending on the 31st October, 2014, in the document duty rate charged on the two lower bands, to the following:-
- on a conveyance for a value of £250,000 or less – 1%;
- on a conveyance where the value exceeds £250,000 but does not exceed £400,000 – 2%.
As Treasury and Resources' proposals are yet to be formally adopted by the States of Guernsey, the proposed reduction in document duty cannot take effect immediately on the publication of the Budget Report and therefore the current rates of document duty will continue to apply between the date of publication of this report and its debate by the States.
To avoid prospective buyers delaying purchasing until after the budget has been debated, Treasury and Resources have agreed that all conveyances completed between now and the debate will be entitled to a repayment of any document duty saving resulting from any reductions. This will be provided to the purchasers after the conveyance has been completed, so whilst they will still need to pay the full amount of duty, they can at least be assured that a percentage of it will be returned to them.
Treasury and Resources believes that these increases in the document duty thresholds and the temporary reduction in document duty rates for the lower rate band properties should benefit first and second-time buyers and downsizers in particular.
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