Guernsey Challenges Domestic Property Duty Avoidance
by Jason Gorringe, Lowtax.net, London
22 July, 2014
Guernsey has invited public consultation on closing a domestic tax loophole that allows people to transfer real estate without paying duty through a property-owning entity, such as a limited liability company.
Under the current system, document duty is payable upon the registration of a document which transfers an interest in real property (e.g. a conveyance) or imposes a charge on real property (such as a bond securing a loan). This means that the payment of document duty on real estate can be avoided by instead selling the shares of a company that is the beneficial owner of that real estate.
Guernsey's Treasury and Resources Department said that the avoidance method is widely used, and recalled that it had established a Share Transfer Duty Working Group to introduce a framework to prevent the avoidance of duty. The Budget Report of 2012 contained a proposal, which was approved by the States, for the introduction of a scheme for the taxation of sales of interests in entities that own real property in Guernsey at the same rate as applied under document duty legislation.
The proposed new system applies document duty to any transaction which has the effect of transferring an interest in Guernsey real property to any person. However, no duty will be payable where the transfer of an interest in property arises through inheritance or pursuant to a lease, or for the sole purpose of securing a loan. A transfer of shares in a public company where the shares transferred represent less than ten percent of the issued share capital will also not attract duty.
The follow exemptions are proposed, all of which are subject to anti-avoidance measures to prevent abuse:
- Family Transaction, such as a transfer between spouses, cohabitees, or other members of the family;
- Transfers to charitable organisations, the States of Guernsey, friendly societies, and housing associations;
- Transfers of property by a settlor into a trust or by a trustee to a beneficiary of the trust or to a new trustee;
- Certain types of corporate restructuring which do not affect the ultimate ownership; and
- Transfers of property which result from court orders, such as orders for divorce or judicial separation, orders made in relation to inheritance, etc.
Interested parties should reply before August 15, 2014.
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