Earlier this year, new legislation came into force limiting the ability of developers to minimise the amount of stamp duty they pay by entering into ‘resting-in-contract’ structures. Emmet Scully explains how the new arrangements will work.
The Finance Act 2013 introduced anti-avoidance measures that sought to limit the ability of developers to minimise their stamp duty liability on entering into certain property transactions, particularly ‘resting-in-contract’-type structures. These measures came into force on 13 February of this year.
Section 31A of the Stamp Duties Consolidation Act 1999 (SDCA) provides that where a contract or agreement for the sale of land or an interest in land is entered into and payments amounting to 25% or more of the consideration is paid, the contract or agreement is chargeable as if it were a conveyance of the land. Where stamp duty is paid on a contract pursuant to section 31A SDCA and a conveyance is ultimately completed, there is provision for crediting the stamp duty paid on the contract against any stamp duty that would be payable on the conveyance, provided that the conveyance is made “in conformity with the contract”.
Section 31B SDCA provides that where a landowner enters into an agreement with another person that allows that person to enter onto the land to carry out ‘development’ on the land and the landowner receives payments amounting to 25% or more of the market value of the land, otherwise than as consideration for the sale of the land, the agreement is chargeable with stamp duty as if it were a conveyance of the land.
The term ‘development’ is defined as: “a) the construction, demolition, extension, alteration or reconstruction of any building on the land, or b) any engineering or other operation, in, on, over or under the land to adapt it for materially altered use.”
Section 50A SDCA provides that an agreement for the lease of lands for any term exceeding 35 years is stampable as if it were an actual lease, where 25% or more of the consideration specified in the agreement for lease has been paid.
Sections 31A, 31B and 50A SDCA are applicable to all instruments executed on or after 13 February 2013 with the exemption of “instruments executed solely in pursuance of a binding contract or agreement entered into before 13 February 2013”.
Similar anti-avoidance legislation was enacted in the Finance (No 2) Act 2008 but the relevant sections never came into force and the Finance Act 2013 provides for their repeal. That legislation contained exemptions for public/private partnerships and certain property-based tax shelters which were omitted from the legislation introduced by the Finance Act 2013.
The new legislation also contains provisions in relation to each of sections 31A, 31B and 50A allowing for the refund of stamp duty paid on the agreement or contract where it is proven to the satisfaction of the Revenue Commissioners that the contract or agreement in question has been rescinded or annulled.
Section 36 SDCA – an existing anti-avoidance provision concerned with an agreement to sell properties with leasehold title where the purchaser enters into possession within nine months of completion – is repealed by the Finance Act 2013 from 13 February 2013, as the new provisions render it redundant.
There had been some uncertainty with the previous legislation that it might affect resting-in-contract structures in existence on the date on which it became effective. The new legislation is clear that it applies only to new resting-in-contract-type structures executed on or after 13 February 2013. It should be noted that the new legislation does not remove the ability to make use of sub-sale relief provisions, which remain available, provided that no more than 25% of the purchase price is paid to the vendor while the contract remains executory.