Property Taxes It is possible to structure a property-related transaction so that stamp duty can be avoided, according to commercial property specialist Tom Marren. Justin Comiskey reports.
How to avoid/reduce stamp duty was one of the topics discussed at a recent property seminar organised by law firm Reddy Charlton McKnight.
Tom Marren, a partner in Reddy Charlton McKnight for over 20 years and commercial property specialist, told the seminar: "In any type of sizeable transaction, the effective rate of stamp duty is now 9 per cent and much time and thought is now required to ascertain if it is legally possible to avoid stamp duty in a property-related transaction.
"It is possible, in a number of instances, to structure a transaction so that stamp duty can be avoided."
One such way, according to Mr Marren, is in a sub-sale. He said: "Sales of many kinds of property, including land, are not liable to duty at contract stage but only when a conveyance is executed. For this reason an effective method of deferring/avoiding stamp duty liability is to leave the sale at contract stage, and postpone taking a conveyance with a view to selling the property on eventually by way of sub-sale."
A sub-sale involves a chain of sales but with only one conveyance from the original vendor to the final purchaser.
Licence agreements were cited as another way to avoid stamp duty. These happen when a developer develops a site but licenses off individual sites to other builders who then sell on completed units - the developer/land-owner meanwhile receives site fines from the builders.
"I have checked with the Revenue," said Mr Marren, "and they take the view that no stamp duty is payable on the licence agreement. This is an option open to a developer who wishes to sell sites as opposed to building houses on the developed lands."
In relation to non-residential land, stamp duty savings are possible if, rather than selling a completed industrial or retail warehouse, the developer enters into a contract for sale before construction begins. "This is used in a number of property transactions and, if structured correctly, it can result in a significant saving of stamp duty," said Mr Marren.
If a property transfer is effected within a group of companies, Mr Marren said a "significant stamp duty relief" was possible.
"I have seen an increasing use of transfer between sister companies or companies within a group," he said. "Indeed, it is possible for one company in the group to transfer or convey the property to another company in the group and the associated company can then sell on the property."
The acquisition of land by way of a sale of shares in a company was seen by Mr Marren as an "attractive option" given that the duty applicable on the transfers of shares in a company amounted to 1 per cent of the consideration - thus giving a stamp duty saving in most cases of 8 per cent.
"Given the increased rate of stamp duty, the acquisition of land by way of a sale of shares will be looked at more favourably in future."
The seminar also discussed design and build contracts, which now make up over 30 per cent of the UK construction market, and are being suggested as one solution to escalating construction costs here. By getting a contractor to take responsibility for the design and build of a project, legal disputes about possible cost overruns and delays are minimised - or so the theory goes.
Paul Kane told the seminar that, while design and build is well-established in the UK and becoming fashionable here, it is not an answer in itself to the problems of price escalation.
"It can have advantages in relation to certain types of projects involving an experienced contractor where the employer is clear on what he wants and where the relationship is well managed.
"But adopting a design and build approach is a formula for litigation if there is a lack of focus on precisely what is required to be delivered, if changes are required to the scope of the works, and if there is a failure to assemble the right team and contractor."
Despite criticism from some sections of the property industry regarding recent legislation on social and affordable housing, Christina McGowan delivered a paper to the seminar which concluded that recent acts - the Planning and Development Act 2000 and the Planning and Development (Amendment) Act 2002 - had the desired effect (from the Government's point of view), "albeit a slow one".
"Following the introduction of the acts," said Ms McGowan, "there was an initial fall-off in the number of planning applications and, given the clawback provisions under the scheme, lending institutions were reluctant to finance the purchase of these designated houses.
"We can expect the concept of social and affordable housing to endure into the future, so the practical implications of both acts require scrutiny and professional advice."
Deirdre Ní Fhloinn, a senior associate with the firm's business law department, gave a paper on design team documents. She said: "Disputes can arise between professionals and employers where the arrangements between the parties are not documented with sufficient clarity. In the area of fees, in particular, disputes can arise where additional services are undertaken by professionals which are outside the scope of the normal services provided.
"For example, where an employer requests a change to a design, this may necessitate considerable additional work and expense for the professional.
"A carefully drafted letter of appointment will hopefully anticipate such additional works and will have allocated the cost of these works either to the employer or to the professional."
