UK: Major Extension of Stamp Duty ‘Disadvantaged Areas’ Relief

A significant new stamp duty exemption will be brought in by the Spring Budget. It will provide a complete exemption from duty for transfers and the premium element of new leases for commercial property in disadvantaged areas. Buyers and sellers of commercial property should plan now to take advantage of the new relief.

If you are currently involved in any transactions in relation to non-residential property in a disadvantaged area, consider postponing the transaction until after the Budget to take advantage of the exemption. The date for the Budget has not yet been set, but it is anticipated to be in early March. Note particularly that:

• whilst the transitional provisions have not yet been published indications are that the exemption will be available for transfers executed after the exemption comes into force, pursuant to contracts exchanged before the measure comes into force. If exchange has already occurred, consider negotiating with the seller to postpone the transfer until after Budget Day;

• where you are involved in negotiating the grant of a lease of non-residential land in a disadvantaged area, consider postponing not only the grant of the lease but also exchange of the agreement for lease until after Budget Day. An agreement for lease is chargeable with the same duty as if it were an actual lease, so whilst transitional arrangements may relieve such arrangements, the safer route must be to delay exchange of the agreement for lease until after Budget Day.

Check which of the properties in your property portfolio is situated in a disadvantaged area by using the post code search - note that it may not be advisable to rely solely on the on-line post code search, double check with the Stamp Office if necessary.If any property in your portfolio does not have a post code, to claim the exemption you will need a map of the property with sufficient detail to pinpoint its location, together with details of which ward the property falls within (the ward boundaries should be drawn on the map if possible).

When considering whether or not to postpone a transaction until after Budget Day to take advantage of the exemption, consider the risk that the exemption may not actually be brought in or that the Budget may bring in new anti-avoidance legislation on any tax (not just stamp duty) which could adversely affect the transaction.

If a transaction does not involve non-residential land in a disadvantaged area, or if it is not possible to postpone a transaction until after Budget Day, consider implementing a scheme to mitigate the stamp duty liability Many such schemes are available and our Property Tax team has considerable experience in successfully implementing them. We would be happy to discuss the possibility of putting such a scheme in place with you.

The first phase of this stamp duty relief is in fact already in force. It was brought in with effect from 30 November 2001 and provides an exemption from stamp duty for purchases or grants in relation to property in designated ‘disadvantaged areas’ of the UK, where the consideration, or premium for lease, does not exceed £150,000 (inclusive of VAT).

The classification of disadvantaged areas is based on electoral wards (except in Scotland where it is based on post codes).

In order to administer the exemption, the Stamp Office ask that everyone who claims the exemption must let them know the post code for the property. The Stamp Office website contains a post code search to enable people to input the relevant property post code and assess whether the property in question is eligible for the relief.

Note that the disadvantaged areas list has been based on ward information from 1991 (Northern Ireland) and 1998 (England and Wales). In some places there have been boundary or other administrative changes since these dates. Where this has happened the post code will be the key to determining whether the property falls within a qualifying area. In these circumstances it is advisable to telephone the Stamp Office to check whether the exemption is available.

In April 2002, the Chancellor announced more details of the proposed ‘second phase’ of the exemption subject to the European Commission authorising it for state aid purposes. This authorisation has now been obtained and the Government has announced that it will implement the relief on Budget Day (not yet announced but expected in March).

The second phase of the stamp duty exemption scheme for disadvantaged areas will:

• introduce an unlimited exemption from stamp duty for the purchase price or premium on a transfer or grant of a lease of non-residential property in a disadvantaged area; and

• ensure that the relief will extend to lease duty on rent on the grant of new leases in disadvantaged areas but only in some circumstances (the details of which have not yet been published).

The £150,000 cap will therefore still apply to residential property in disadvantaged areas. The legislation defines ‘residential property’. A dwelling is ‘residential’. Buildings used as hospitals, student halls of residence, hotels and prisons are all examples of non-residential use. The purchase of six or more separate dwellings (via a single contract) is also non-residential and so will have an unlimited relief.

A list of the areas designated as disadvantaged can be accessed via the Inland Revenue website: www.inlandrevenue.gov.uk/so/disadvantaged.htm

The Stamp Office's post code search can be accessed via this link: www.inlandrevenue.gov.uk/so/pcode_search.htm

A document must include an appropriate certificate, for example ‘I/we certify that this is an instrument on which stamp duty is not chargeable by virtue of the provisions of Section 92 Finance Act 2001’. It must then be formally adjudicated, and a certified copy should be included in the application.

Under phase 1 (and for residential property under phase 2) where the consideration is £150,000 or less, a document should also contain a £250,000 certificate of value.

A payment for lease duty on the rental element of a lease must still be made under phase 1.