Land Tax on Share Transfers

On 11 March 2008 the States are due to debate the draft Taxation (Land Transactions) Jersey Law 200- (the "Land Tax Law") which, if approved, will provide for a land transfer tax ("LTT") on the transfer of shares in a company which confers a right of occupation of land in Jersey. LTT will be calculated on the same basis as a freehold conveyance of land. In addition, a bank or other lender securing a loan over the shares by way of a security interest agreement will be liable for LTT. 

In addition, the Land Tax Law will also apply where a company owns land in Jersey and shares in the company are held in trust for a person and there is a change of declaration of trust on which the shares are held. 

The Land Tax Law seeks to achieve equity between the financial costs of purchasers of property by share transfer and freehold. At present freehold purchasers are required to pay stamp duty under the Stamp Duties and Fees (Jersey) Law 1998. 

The Land Tax Law places a legal obligation on the purchaser of a property by share transfer to pay a self assessed tax exactly equal to stamp duty which would have been paid on the purchase if it were a freehold property. This includes all relevant discounts such as first time buyers, a matrimonial home being transferred either from sole or to joint ownership of spouses or from joint to sole ownership of spouses and also acquisitions by a recognised charity or pension fund. 

The Land Tax Law specifically excludes any share transactions where no right of occupation of land is conferred on the shares. Thus if a property is owned by a company the shares of which do not explicitly provide a right of occupation then no tax would be payable. LTT will therefore principally be payable on the share transfer purchase of an apartment and also upon any loan secured thereon.

The Law will be administered by the Comptroller of Income Tax as opposed to the Registrar of Deeds and the Judicial Greffier who regulate stamp duty. 

In brief:

1. The occupier or the secured party has the legal obligation to provide a statement in prescribed form in respect of the transaction and pay the amount of LTT charged. 

2. Whilst technically the statement and payment of LTT can be delivered within twenty-eight days following the completion of the transaction in practice it is going to be paid in advance of completion (as is presently the case with stamp duty on freehold purchases). This is principally because a company cannot register the transfer of shares unless the LTT receipt (or a certified copy thereof) is produced to the company. Many banks and other lenders will therefore require the transfer of shares to be issued before mortgage finance is released. 

3. The Comptroller has the ability to reduce or remit the amount of LTT charged where it would, in his opinion, be just to do so. 

4. There is also a 10% surcharge if the LTT is not paid within twenty-eight days of completion. The Comptroller may waive or reduce payment of the surcharge if the failure to pay is caused by the action of a third party not connected with the transaction or if the delay was caused by death, serious illness or other grave and exceptional circumstances. 

If the States approve the Land Tax Law it will need to be sanctioned by the Privy Council (which usually takes approximately 6 months) and will come into force on a day appointed by a further Act of the States.

Anomalies of the draft legislation

• Whilst it is the intention of the legislation to levy LTT at the same rate as stamp duty in respect of charges to be secured over the shares the present drafting of the schedule of the law is incorrect in that it presently states that the stamp duty will be calculated on the same basis as a freehold purchase. 
  
• The report to the draft law states that it is intended to "specifically exclude any share transactions in companies where no right of occupation is secured as a result". Due to the potential vagueness of the existing definitions it will be better if this was specified more clearly in the legislation.
  
• The definition of "transfer" is extremely wide in that it could include a transfer arising by inheritance. This would impose double payment as stamp duty is paid on letters of administration or probate of a deceased’s estate. The transfer to an Executor or Administrator and the onward transfer to the specific beneficiary should be exempt from LTT.
  
• It would be preferable if the LTT was payable after the transfer.
  
• In relation to secured charges the law as presently drafted could also capture transfers from a secured party into their own name when they realise the security on a default. 

We, and other firms of lawyers, have raised the above anomalies with the Law Drafting Department. 

For detailed advice concerning land tax on share transfers in Jersey, please contact Chris Renouf.

The information and expressions of opinion contained in this guide are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.