House prices and the duty paid

Continuing his series of property articles, estate agent Trevor Cooper takes a look at document duty

THE price a property sells for is, or at least should be, kept confidential during the negotiation process.

Different from a sale by public auction, a sale by private treaty is exactly that – private.

The sale is completed when the conveyance is agreed to in court. This is commonly known as conveyancing court and is actually a sitting of the Royal Court, but held in the Magistrate's Court because the latter is better designed for the procedure. It is also affectionately known as the 'cattle market', as anyone who has been there on a busy day will testify.

The conveyances, bonds and agreements completed in court are usually registered at the Greffe at 4pm the same day. Clerks from the various advocates' offices collect in the Greffe's strongroom, also housed within the court buildings, to ensure their documents are registered and check no other documents are being registered that would affect the title to the property being purchased.

The clerks' shuffle, as this is known, is a genial meeting and sometimes a welcome point of closure on any transactions that have proved particularly tricky or drawn out. There remains, however, the dread right up to 4pm that an unexpected claim or counter-document could be thrown in at the last minute. This is unlikely in practice, but the arrival of HM Sergeant brandishing a pale blue court order registering a charge against a property can throw hitherto conviviality into sudden panic.

At preciously 4pm by the old and trusted clock on the strongroom wall, the drawer containing all the documents needing to be registered that day is locked and the clerks disperse to prepare for the next conveyancing court.

Registration is a daily practice, although busiest when conveyancing court sits most Tuesdays and Thursdays. The conveyances and other documents are then placed on public record.

It is from these public records that the monthly lists of property sales are compiled for the Guernsey Press House & Home supplement and other publications and websites.

This relatively recent innovation, if a decade or two can be called recent, is considered intrusive, even unseemly, by a minority of people – although the identity of vendors and purchasers is not published, even though this information is freely available.

What these monthly sales lists and price websites briefly refer to but do not take fully into account is that the price shown on the conveyance, and therefore recorded at the Greffe, is almost certainly not the price paid for the property.

Other than standard court and Greffe fees, document duty (also known as stamp duty from when actual stamps were embossed or stuck onto documents) and advocates' fees are charged at a percentage of the amount paid for the realty – in other words, the land, bricks and mortar.

Legal fees are not due on personalty, i.e. contents such as carpets and curtains and kitchen appliances. If the full price paid for a property is apportioned then the breakdown is typically, but not always, 95% realty and 5% personalty. It is the realty price shown on the conveyance and recorded at the Greffe and therefore quoted on the monthly lists of property sales.

Not that merely adding 5% to the price shown on the monthly sales lists is entirely accurate. Simple mathematics demonstrates that 95% of 100 is 95, whereas 95 plus 5% equals 99.75. A small point, but worth making.

The monthly lists and property price websites explain that the figures shown are the realty prices, but without further clarification, which can be overlooked by many convinced the price shown is the price paid.

Some buyers ask for the personalty figure to be increased above 5% to save on legal fees. This is rarely done and then only with very good reason.

It was commonplace in the past for the apportionment to be 90% realty and 10% personalty. But the Guernsey Law Officers, prompted no doubt by the States Treasury, stipulated that the personalty figure should not be higher than 5% without justification. The Law Officers also warned that an independent valuation of the personalty may be carried out regardless of the percentage claimed, with the discretion to fine or imprison someone making a false statement and charge three times the amount of the outstanding duty.

The vendor may also be charged with conspiracy and, most significantly, the independent valuation would not be based on replacement value of those items of personalty but on their worth if the carpets were rolled up, the curtains folded and the fridge unplugged and sold at auction.

This is harsh because the convenience of having contents in situ is worth more to the individual than those items are worth to anyone else second-hand.

Nevertheless, basing a sale on the average price of a house in Guernsey, which we are told currently stands at £439,837, the realty would be rounded to £417,850, giving a 5% personalty figure of £21,987. How many of us could truthfully say that contents included in a sale of our house would raise that amount if put in the back of a lorry and sold second-hand at auction?

Claiming 5% of the purchase price as personalty, for our average Guernsey house, saves £825 in legal fees. Most purchasers are pleased to stick with that without wishing to risk a challenge from the Law Officers.

Not that the personalty figure has to be 5%. There is unlikely to be any at all with a field and the contents of a derelict house might cost more to dispose of than could be claimed in value, whereas antique wall panelling in one of Guernsey's grandest open-market houses was judged to be personalty as it did not form the structure of the house and could be removed. This was valued at hundreds of thousands of pounds, something like 20% of the price paid for the house at the time. The legitimate saving on legal fees was substantial.

Another genuine saving on legal fees is when a new house is sold in course of construction. Legal fees are calculated on the value of the land and the cost of the building at whatever stage it is at when the conveyance is registered, irrespective of the property's ultimate market value.

The English government provided a stamp duty holiday from 2010 until March this year to boost house sales below £250,000. Such an initiative would be welcome in Guernsey, not only helping first-time buyers but with the domino effect encouraging an increase in higher-price sales, producing far more stamp duty than relinquished at the lower end of the market.

And what happened to conge, the 2% feudal due formerly paid on property sales? The States abolished that 10 years ago – but stamp duty was increased by the same amount.