Is it time for stamp duty reform?

There is no doubt about the value of Guernsey’s property market to the island’s exchequer – and the recent sales of two of Guernsey’s most expensive open market properties illustrate the numbers involved.

Maison de la Falaise near Fermain was sold in October last year and, also in St Peter Port, Normanville in Fosse Andre was sold in December. Between them, the two purchasers paid a total of £28,950,000 for their respective properties, netting the States’ coffers £1,493,443 in stamp duty – a percentage fee based on the realty price of the property changing hands.

Not that stamp duty is cheap for any arm’s-length transaction. The amount payable for a property priced at £554,290, the present average house price on the local market, is a shade over £17,000. Even the current cheapest residential property, available at £180,000, will attract stamp duty in the region of £4,000.

Also known as document duty, the term stamp duty derives from when printed stamps were stuck on the conveyance document, or title deed. These predate but were otherwise similar to today’s postage stamps, eventually replaced by impressive embossed seals stamped in red ink on the left-hand margin of the front page. They were of various denominations and imprinted by the local office of Her Majesty’s Receiver General, using hand-levered, cast-iron presses with gold filigree patterns on their black enamel. Now, your title deed has something looking like a supermarket till receipt in the top left hand corner.

Stamp duty is a direct tax, pure and simple. There are additional charges for registering the conveyance document at the Greffe, and court fees for convening the conveyancing court and the jurats’ attendance. These charges, however, pale into significance compared to stamp duty.

The origin of paying duty on property purchases dates back to the late 1600s, as a temporary measure introduced by the English government to fund war against France. Such was the success of the new tax that it was widely adopted and is still with us today.

Alderney and Sark set their own taxes on property transfers, whereas Guernsey’s stamp duty is tiered in six ascending price bands, beginning at 2.25% of the property’s realty price not exceeding £250,000; plus 3.5% of any part of the price above £250,000 but not exceeding £400,000; and so on in varying tranches up to 5.5% of any part of the property’s realty price exceeding £2,000,000.

The realty price, incidentally, is the value of the ‘immoveable’ part of the property as opposed to the ‘moveable’ parts such as carpets and curtains, which are non-taxable. This is known as personalty and typically valued at 2.5% of the total purchase price. It’s why there are irregular looking prices in the published lists of sales from previous months, as only the realty price is recorded on the conveyance document.

Having established the immense value of stamp duty to Guernsey’s finances, any suggestion of curbing it is unlikely to be well received. But this is exactly what our States should be considering in the current housing market conditions.

The escalating price of property is out of reach for many islanders, first-time buyers or not, and to burden them with additional thousands in stamp duty is not only prohibitive but also counter-productive.

Mortgage providers presently lend solely against a property’s value and borrowers have to self-fund a sizeable deposit and the legal costs. The need to find the deposit and, say, £7,000-worth of stamp duty from their own pocket will often scupper the deal, and this on a property costing £300,000 – if they can find one.

The States will point to the Document Duty (Guernsey) Law 2017 that reduced stamp duty rates at the lower end of the scale. What the States will not want to be reminded of is the length of time it took to introduce the corresponding Document Duty (Anti-Avoidance) (Guernsey) Law 2017.

This closed what many saw as a loophole whereby selling the shares of a non-trading Guernsey company that owned local or open market, commercial or industrial property was exempt from stamp duty. It still is, although any properties transferred as a consequence now attract stamp duty at their market value.

The States had been aware of this apparent loophole for decades and the amount of lost revenue during that time is incalculable, but will run into tens of millions of pounds, if the amount of stamp duty paid on the recent sales of Maison de la Falaise and Normanville is anything to go by.

Rather than reduce stamp duty at the lower scale by a shamefaced amount, the States should atone for past omissions by making entry-level properties exempt, as they are in England. In fact, the limit of Guernsey’s exempt echelon should be at least £350,000, in view of the island’s property prices.

As for the loss of revenue, there are two ready answers.

Firstly, the States should not and cannot morally impose a prohibitive tax on islanders struggling to buy their own home when successive past assemblies knowingly neglected to levy stamp duty on share transfers involving expensive properties. The shareholders did nothing wrong, they were legitimately advised to exercise their right, and there continue to be valid alternative reasons to hold property in a company name.

This is not hypocritical of me, as a former estate agent. The saving on stamp duty was a winning incentive, but those properties would have been bought and sold regardless.

Secondly, as any pro-active governing body will recognise, new buyers bring with them new money. That releases others to buy elsewhere and so the domino effect continues, with the States as a consequence reaping the benefit of higher-level payments of stamp duty.

Anyone unsure about such a minor adjustment to our stamp duty law should be sitting down if reading my article next week, when I explore mainland property sector proposals for stamp duty. These include the tax being paid by sellers, rather than purchasers, or for stamp duty to be abolished altogether and the annual loss of revenue funded by all householders paying higher rates.