transfer of business stamp duty

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What Is a Stamp Duty?

Understanding a stamp duty.

• History of Stamp Duties in the U.S.

What is a transfer tax?

Are stamp taxes tax deductible, are tax stamps collectible.

• Government & Policy

Stamp Duty: Meaning, History in the U.S., FAQs

A stamp duty is a tax that governments place on legal documents, usually involving the transfer of real estate or other assets. Governments can impose stamp duties, also known as stamp taxes, on documents that are needed to legally record those types of transactions, as well as on documents recording marriages, military commissions, copyrights, patents, and so forth.

Historically, governments have used stamp taxes as a way to raise money to fund their activities. Stamp duties are thought to have originated in Spain in the early 17th century. They were called “stamp” duties because a physical stamp was put on the document as proof that it had been officially recorded and the tax liability had been paid.

Key Takeaways

• A stamp duty—also known as a stamp tax or documentary stamp tax—is a tax that a government levies on documents that are required to legally record certain types of transactions.
• Governments have imposed stamp duties on a variety of documents, including those related to the sale or transfer of real estate, patents, securities, and copyrights.
• Governments use these taxes as a source of revenue to fund government programs and activities. In some cases, they are referred to as revenue stamps.

The stamp duty is also known as a documentary stamp tax. Governments around the world levy these taxes on a variety of legally recorded documents.

Before income and consumption taxes provided governments with a substantial tax base, they raised revenue primarily through property taxes , import duties , and stamp duties on financial transactions. 

As income and consumption have grown, it might have made sense to do away with stamp duties. So why do we still have them in many places? Simply put, they provide a steady stream of income for governments.

Today, however, stamp duties apply to far less than the broad category of “financial transactions.” They do remain on properties, though. They are often levied when real estate is transferred or sold; additionally, many states impose taxes on mortgages and other instruments securing loans against real estate.

While the United States once imposed stamp taxes on a variety of transactional documents, there is no federal stamp tax today, except in very limited circumstances. One is a tax on the transfer of certain firearms and accessories that are subject to the National Firearms Act.

The U.S. Fish and Wildlife Service also requires waterfowl hunters age 16 or older to purchase Federal Duck Stamps, which serve as both a hunting license and a free pass for any national wildlife refuge that otherwise charges an entry fee. The agency says that “nearly all of the proceeds are used to conserve habitat for birds and other wildlife, birders, nature photographers, and other outdoor enthusiasts.” Some states also issue their own versions of duck stamps for similar conservation purposes.

Otherwise, only state and local governments currently impose stamp taxes in the United States. In addition to various legal documents, “48 states and the District of Columbia, Guam, and Puerto Rico currently require a tax stamp affixed to tobacco products,” according to the Centers for Disease Control and Prevention.

History of Stamp Duties in the United States

By the 17th century, governments had introduced stamp duties throughout Europe. Over the next century, they became a common form of taxation in the Netherlands, France, Denmark, Prussia, and England. 

In 1765, the British parliament passed a stamp tax to be imposed on American colonists, requiring them to pay tax on all printed papers, such as licenses, newspapers, ships’ papers, and even playing cards. The British government said the funds collected from stamp duties were needed to pay for positioning troops in certain locations of America and to pay for the massive war debt it had incurred during the Seven Years’ War.

American colonists were outraged by the imposition of the taxes, which they believed were a deliberate attempt by Britain to control commerce and curtail colonial independence. The Stamp Tax was enacted without the knowledge of or input from the colonies, becoming a prime example of taxation without representation . The Stamp Act led to the first concentrated effort by the colonists to resist British authority and became a milestone event leading up to the American Revolution.

Stamp taxes have endured much longer in Britain itself. Today, the United Kingdom imposes a stamp duty land tax (SDLT) on home purchases, although homes under a certain value are not subject to it. For example, the current threshold for residential properties is £125,000. However, first-time homebuyers get a break—their threshold is £500,000.

A transfer tax is a type of stamp tax that some state and local governments impose when the deed or title to a home or other property changes hands. It is often included in the long list of closing costs .

Not directly, although the law does offer a tax break on some of them. As the Internal Revenue Service (IRS) explains, in the case of home purchases, “You can’t deduct transfer taxes and similar taxes and charges on the sale of a personal home. If you are the buyer and you pay them, include them in the cost basis of the property. If you are the seller and you pay them, they are expenses of the sale and reduce the amount realized on the sale.”

Yes, some postage stamp collectors also collect tax stamps, often referred to in the hobby as “revenue stamps.”

The Bottom Line

A stamp duty, also known as a stamp tax, is a tax imposed on certain transactions, typically by state or local governments. In many cases, a stamp duty will represent a charge for recording the transfer of real estate or other assets from seller to buyer, but it can also be levied on other types of documents and even some products, such as cigarettes. Stamp taxes were a major factor leading to the American Revolution.

Library of Congress. “ United States Code: Machine Guns, Destructive Devices, and Certain Other Firearms, 26 U.S.C. §§ 5801–5872 (Suppl. 5 1964). ”

PwC, Worldwide Tax Summaries. “ United States: Corporate—Other Taxes .”

U.S. Fish and Wildlife Service. “ Duck Stamps .”

U.S. Centers for Disease Control and Prevention. “ STATE System Tax Stamp Fact Sheet .”

Gilder Lehrman Institute of American History. “ The Stamp Act, 1765 .”

Gov.UK. “ Stamp Duty Land Tax .”

Internal Revenue Service. “ Publication 530: Tax Information for Homeowners ,” Page 4.

Linn’s Stamp News. “ Revenue Stamps Pay Tax Instead of Postage .”

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What stamp duty applies to

Stamp duty concessions and exemptions, information for your state or territory.

Stamp duty is tax that state and territory governments charge for certain documents and transactions.

You’ll need to pay stamp duty for things like:

• motor vehicle registration and transfers
• insurance policies
• leases and mortgages
• hire purchase agreements
• transfers of property (such as a business, real estate or certain shares)

The amount of stamp duty you’ll need to pay depends on the type and value of your transaction.

In some circumstances, you may be able to get a concession or exemption from paying stamp duty. The rules vary, so check the website for your state or territory.

Stamp duty (also called transfer duty or duty) varies between states and territories. Find out more about duties that apply to your business:

• ACT Revenue Office duties
• NSW Revenue taxes and duties
• NT Government stamp duty
• QLD Treasury transfer duty
• Revenue SA stamp duty
• State Revenue Office Tasmania duties
• State Revenue Office Victoria land transfer duty
• WA State Revenue duties

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Tax considerations on transfer of a business to the next generation

Brian harty, tax consultant, explains the main tax implications guiding a family business as it considers its succession strategy.

A child can receive tax-free lifetime gifts/inheritances from parents up to the value of €335,000, whereas gifts from siblings, aunts, uncles, and grandparents is €32,500. PIcture: iStock

Succession planning is a process that involves careful consideration of all the issues when an owner decides to pass on their family business.

For the succession planning to be effective, it is important that all parties in the transfer are involved, and that both tax and legal advice is sought as part of the planning process.

Brian Harty, tax consultant

There are many factors to consider such as the financial independence of the current owner post-transfer; tax implications on the transfer; and the financial position of the business post transfer.

The purpose of this article is to provide a brief insight into some of the tax issues and reliefs that will be considered as part of that succession planning process. There are three capital taxes to consider when implementing a succession plan, Capital Gains Tax, Capital Acquisitions Tax and Stamp Duty.

Undoubtedly each tax head and associated tax relief mentioned below could merit an article in its own right, hence the reason for a brief rather than an in-depth discussion of each.

Capital Gains Tax (Tax on transferor/owner)

Capital Gains Tax (CGT) is the tax an owner pays on the gain arising on the disposal of a business (i.e. company shares, goodwill or property such as land/buildings) during their lifetime. Regardless of whether consideration is received, CGT may be payable on the appreciation of the market value from the date the owner acquired the business (or business assets) to the date of disposal.

This gain can be substantial where an owner has built up a business from scratch or the business assets have simply appreciated substantially in value over a period of time. The CGT rate of tax on this gain is currently 33%. It is worth noting, however, that CGT does not apply on the transfer of assets on death and in some succession planning scenarios where CGT is substantial and can’t be relieved, the transfer of the business may be carried out by Will (inheritance). However, this form of transfer (Will) may not be in the best interest of the business in the subsequent years ahead. There are a few reliefs available that may reduce or fully relieve a CGT liability on lifetime transfers.

These CGT reliefs are conditional on certain points being met, therefore it is imperative that in the succession planning process each relief is carefully considered to achieve the most tax efficient transfer possible based on the circumstances.

The most notable reliefs being:

• Retirement Relief;
• Revised Entrepreneurial Relief;
• Seven Year CGT Relief.

Retirement Relief

Retirement Relief is a conditional relief from CGT on the disposal of all or part of business assets such as farmland, business premises and family trading company shares. Whilst its name would suggest otherwise, it is not a condition that the owner must retire to qualify for the relief.

Where the transferor is aged 66 or over an aggregated transfer value cap of €3m is applied

When considering Retirement Relief the main conditions to note are:

• It only applies to individuals 55 years or older;
• The asset must have been owned for the previous 10 years;
• Where the asset being transferred is shares in a trading company the owner must meet certain working director criteria.

Where all conditions for Retirement Relief are satisfied, the transferor may be fully relieved from CGT on transfers to a child (incl. certain niece/nephew, foster child, or child of a deceased child).

Where the transferor is aged 66 or over an aggregated transfer value cap of €3 million is applied.

For all other non-child defined transfers that qualify, relief from Capital Gains Tax will be provided up to an aggregated disposal value cap of €750,000 (reduced to €500,000 where transferor is 66 years or older).

Revised Entrepreneurial Relief

Revised Entrepreneurial Relief (RER) reduces the rate of CGT from 33% to 10% on the first €1 million of aggregated lifetime gains on a disposal of business assets such as land and buildings, goodwill, and trading company shares.

The aggregated lifetime limit only applies to gains made on disposals on or after the 1st January 2016 when RER was first introduced. Where all the conditions are met, the relief provides for a possible tax saving of up to €230,000. Unlike, Retirement Relief the proceeds or market value isn’t taken into consideration.

Furthermore, there is no age condition applicable to the owner transferring the assets.

When considering RER, the main conditions to note are:

• The asset must be owned by the individual for three of the previous five years ending with the disposal;
• The asset must have been used as part of the qualifying business;
• Where the asset being transferred relates to shares, there are minimum shareholding ownership and working employee/director criteria to be met.

Seven-Year Exemption / Relief

This relief applies specifically to gains on disposals/transfers of land and buildings which was originally purchased during the period 7th December 2011 and 31st December 2014. Relief from CGT is given on a fractional basis, whereby relief for 7 years over the number of ownership years is provided. i.e. If the property was owned for 10 years then 7/10ths of the gain on disposal is relived from being assessed for CGT.

Capital Acquisitions Tax (Tax on beneficiary / successor)

Capital Acquisitions Tax (CAT) is the tax a beneficiary pays on the gift/inheritance of assets. Where a successor receives a business without paying full market value for the business they are deemed to receive a gift.

Depending on the relationship between the owner and the deemed successor, a portion of the gift/inheritance value may be received tax-free with the balance liable to CAT at a rate of 33%.

For example, a child can receive tax-free lifetime gifts/inheritances from parents up to the value of €335,000, whereas gifts from siblings, aunts, uncles, and grandparents is €32,500. Gifts from all other parties are liable to CAT above a lifetime tax-free threshold of €16,250.

Note these tax-free thresholds are aggregated for gifts/inheritances received on or after the 5th Dec 1991, so once the threshold is exceeded the beneficiary will begin to pay CAT at 33% on the excess amount.

As with CGT there are also reliefs available against CAT to further facilitate succession of businesses without tax being a significant burden. The two most notable CAT reliefs being Agricultural Relief and Business Property Relief.

Agricultural Relief/Business Property Relief

Agricultural Relief and Business Property Relief both have their own conditions to be met to qualify for the relevant relief. Depending on the circumstances a beneficiary may in fact qualify for one or both of the reliefs at the same time. Regardless of which relief the beneficiary qualifies for, both reliefs provide the same tax relieving measure. The tax relief is provided by reducing the assessable asset value by 90% on a gift/inheritance.

For example, a beneficiary receives a gift of a trading premises worth €2,000,000. If they qualify for Business Property Relief the assessable gift value of that property is only €200,000. Assuming there is no available tax-free threshold remaining the relief will provide a tax saving of €594,000 (€1.8m*33%).

Note both reliefs also have clawback measures whereby their respective relief are withdrawn if certain conditions are not met post-transfer.

Same Event Relief

In a lifetime transfer where reliefs do not fully relieve both CGT and CAT on the same transfer, there is a relief available called Same Event Relief. This relief effectively allows the beneficiary to take a credit for the CGT paid (by the transferor) against the CAT arising on the beneficiary. There is however a clawback of the relief where the asset is sold within two years of the relief being claimed.

Stamp Duty (Tax on successor)

Stamp Duty is a tax on certain instruments (written documents). In relation to a transfer of business assets such as land & buildings, or trading company shares, stamp duty is payable on the market value of these assets. The current rate of stamp duty is as follows:

• Commercial property: 7.5%
• Residential Property: 1% (2% on excess over €1m)

Unfortunately, there are very little reliefs available against stamp duty on the transfer of business assets, and given today’s high rate of commercial stamp duty at 7.5% it would certainly be a significant hurdle for business succession where property is being transferred. However, where the business assets transfer is in the form of trading company shares the rate applicable is 1%.

Reliefs on agricultural land & buildings transfers

There are conditional reliefs available for stamp duty on the transfer of farmland and buildings. For example, the transfer of farm property to young trained farmers may be exempt from stamp duty, and a transfer of farm property to qualifying blood relatives may reduce the stamp duty rate from 7.5% to 1%.

Given the high rate capital taxes involved in business transfers (CGT 33%, CAT 33%, Stamp Duty 7.5%), it is crucial that all reliefs are carefully explored to reduce the financial impact on lifetime business transfers.

While all three taxes apply on lifetime transfers, only CAT is applicable on the transfer by inheritance (Will). However, where a decision to transfer by inheritance is chosen, one must realise that current tax rates, reliefs and market values may differ at that point in time in the future.

Family businesses are not created overnight. They take many years of sacrifice and hard work to build up and even then this work ethic must continue to ensure its survival. For this reason alone, business owners and their potential successors should engage in proper succession planning to ensure the business transfer is tax-efficient and avoids any significant financial impact on businesses and their owners.

Brian Harty, BBS FCCA AITI Harty Tax Consulting, 1 Rock Street, Cloyne, Co Cork.

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Stamp Duty for a Sale of Business: A Practical Guide

By Joshua Elloy Senior Legal Project Manager and Lawyer

Updated on October 28, 2021 Reading time: 5 minutes

Stamp duty is a tax imposed by Australian state and territory governments on the purchase of assets. Each government has different stamp duty legislation, so it is important to understand how it applies in your relevant state or territory. In most cases, the purchaser pays stamp duty. Therefore, to determine if stamp duty applies to the business you are purchasing, you should obtain taxation advice from an experienced lawyer or accountant. This article gives a brief overview of how each state and territory imposes stamp duty for a sale of business.

What is Stamp Duty?

Stamp duty  is a state or territory-based tax which is applied to certain transactions over assets considered dutiable property in that area. As an explanation, dutiable property includes:

• real property such as land or real estate;
• shares; and
• units in a unit trust.

You must pay stamp duty on:

• documents or any transactions that affect transfer of ownership of dutiable property; or
• the creation of rights in relation to certain assets.

If you are dealing with a transaction concerning dutiable property, it is crucial that you understand how stamp duty applies to you and what responsibilities you may have.

New South Wales

In NSW, stamp duty falls under the Duties Act 1997 (NSW) and is the responsibility of Revenue NSW . On 1 July 2016, NSW abolished stamp duty for a sale of business assets (other than real property business assets). However, a nominal duty may still be payable if the business sale includes a transfer of lease and goods . The nominal duty payable is $10.00 on the sale of business agreement , transfer of lease and duplicate sale of business agreement .

Stamp duty is generally due within three months of the relevant transaction (for example, the transfer or agreement to transfer dutiable property) at the relevant rate .

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Stamp duty in Queensland applies to business sales and falls under the Duties Act 2001 (QLD). The Office of State Revenue Queensland is the responsible authority. In QLD, stamp duty is payable on dutiable property, which includes all business assets except:

• business transfers solely involving debts; and
• transfers of a supply right, or intellectual property.

The purchaser will have to pay stamp duty when they sign the transfer agreement. The stamp duty is generally payable within 30 days, at the relevant rate .

Under the Duties Act 2000 (VIC), stamp duty is not charged on the transfer of business assets (other than real property), and there is no nominal fee on the sale of business agreement , as there is in NSW. The State Revenue Office Victoria is the responsible authority for all stamp duty enquiries in the state.

Liability for stamp duty for a sale of business arises when the relevant dutiable transaction occurs and is payable within 30 days at the relevant rate .

The Ultimate Guide to Selling a Business

When you are ready to sell your business and begin the next chapter, it is important to understand the moving parts that will impact a successful sale.

This How to Sell Your Business Guide covers all the essential topics you need to know about selling your business.

Western Australia

In Western Australia, stamp duty is payable on the sale of business assets, including goodwill and intellectual property. The Duties Act 2008 (WA) is the relevant legislation outlining the requirement to pay stamp duty and the responsible authority is State Revenue – Department of Finance (WA).

You have to pay stamp duty once exchange of business assets has occurred. The stamp duty is payable within one month of the date of the assessment notice issued by the responsible authority at the relevant rates .

Northern Territory

Under the Stamp Duty Act 1978 (NT), stamp duty is payable on business asset sales except the following:

• stock-in-trade (trading stock);
• manufacturing materials and work in progress manufacturing goods;
• motor vehicles; and

If you are selling your business in the NT, your sale of business agreement should be lodged with the Territory Revenue Office to assess the stamp duty payable on the sale.

After the sale of business agreement has been signed by the parties, stamp duty is payable within 60 days at the relevant rate .

Australian Capital Territory

There is no stamp duty or nominal fee payable on a sale of business in the ACT. The only exception is for real property assets. The ACT Revenue Office is the responsible authority for all duty enquiries in ACT. Stamp duty is generally payable within 90 days of the relevant agreement at the relevant rate.

South Australia

In SA, stamp duty falls under the Stamp Duties Act 1923 (SA). On 18 June 2015, SA abolished stamp duty on all sale of business agreements signed after that date. There is no nominal fee applicable either. However, it will still apply on the transfer of land or a motor vehicle that is included as part of the sale of the business. Revenue SA is the responsible authority for all stamp duty enquiries in SA. Stamp duty is generally payable within two months of the relevant transaction at the applicable rates .

Stamp duty in TAS falls under the Duties Act 2001 (TAS). In 2008, Tasmania removed duty on all assets in a sale of business except the transfer of land. There is no nominal fee payable on the transfer either. The responsible authority for all duty enquiries is the State Revenue Office of Tasmania . Stamp duty for a sale of business is generally payable within three months of the relevant transaction at the applicable rates .

Key Takeaways

Each business sale is different. Therefore, you should discuss your sale with both your legal advisor and the responsible state or territory authority before proceeding with the sale. It is important to include the appropriate stamp duty clauses in your sale of business agreement.

If you require advice on stamp duty for a sale of business, contact LegalVision’s taxation lawyers on 1300 544 755 or fill out the form on this page.

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• Stamp duty and other tax on property

Stamp Duty Land Tax: transfer ownership of land or property

Find out if you have to pay Stamp Duty Land Tax (SDLT) on transfers of land or property depending on type of transfer, your marital status and other factors.

The following guidance includes calculations.

You do not pay Stamp Duty Land Tax if you buy a property in:

• Scotland from 1 April 2015 — you pay Land and Buildings Transaction Tax
• Wales from 1 April 2018 — you pay Land Transaction Tax ( LTT )

You may need to pay Stamp Duty Land Tax when all or part of an interest in land or property is transferred to you and you give anything of monetary value in exchange.

Anything of monetary value that you give in exchange is called the ‘chargeable consideration’ .

The rules you use to work out how much Stamp Duty Land Tax you pay depend on the circumstances of the property transfer.

If you marry, enter into a civil partnership or set up home together

You might pay Stamp Duty Land Tax when you transfer a share in a property to a spouse or partner when you do one of the following:

• enter into a civil partnership
• move in together

You pay Stamp Duty Land Tax if the chargeable consideration given in exchange for the share transfer is more than the current Stamp Duty Land Tax threshold for the property type.

An example of when you pay Stamp Duty Land Tax when no money changes hands

The owner of a property valued at £700,000, with an outstanding mortgage of £600,000, transfers half the property to their partner when they marry in October 2022. Their partner takes on 50% of the mortgage (£300,000).

HMRC charge Stamp Duty Land Tax on the amount paid for a property or the amount of ‘chargeable consideration’ given.

By taking liability for the mortgage, the owner’s partner has given ‘chargeable consideration’ of £300,000 for their share of the property, which is £2,500 Stamp Duty Land Tax (0% of £250,000 + 5% of £50,000).

An example of when you do not pay Stamp Duty Land Tax

A house has a value of £180,000. The owner of the property has equity of £90,000 and an outstanding mortgage of £90,000. The owner transfers a half share of the property to their partner.

Their partner:

• pays cash for half of the equity — £45,000
• takes responsibility for 50% of the outstanding mortgage — £45,000

So the chargeable consideration for Stamp Duty Land Tax is £90,000, made up of the:

• cash payment
• 50% share of the outstanding mortgage

£90,000 is below the current Stamp Duty Land Tax threshold so there’s no tax to pay. You must still tell HMRC about the transaction on an Stamp Duty Land Tax return .

If the transfer is a gift

If the transfer is a gift and there’s no chargeable consideration, Stamp Duty Land Tax does not normally apply. Read ‘if you’re given property as a gift’ section for more information about when Stamp Duty Land Tax is payable.

If you transfer property because of divorce, separation or the end of a civil partnership

You do not pay Stamp Duty Land Tax if you transfer an interest in land or property to your partner as part of an agreement or court order because you’re either:

• dissolving a civil partnership

This also applies if the partners either:

• annul their marriage
• legally separate

In these cases there’s no need to tell HMRC about the transfer, even if the value is more than the Stamp Duty Land Tax threshold.

If you transfer or divide up jointly-owned property or land: unmarried couples and other joint owners

If joint owners are unmarried and not in a civil partnership when they transfer an interest in land or property from one joint owner to another then you may have to pay Stamp Duty Land Tax.

You do not pay Stamp Duty Land Tax if 2 or more people jointly own property (as joint tenants or tenants in common) and you divide it physically and equally and own each part separately.

If you or another person takes a bigger share, or all of the other’s share, and pay cash or some other chargeable consideration in exchange, you must tell HMRC by filling in a Stamp Duty Land Tax return .

If the amount you pay is more than the current threshold, you’ll pay Stamp Duty Land Tax on it. Read ‘an example of when Stamp Duty Land Tax may be payable’ for more information.

If someone takes on a larger share of jointly owned property

When a property is jointly owned, if you split the property equally Stamp Duty Land Tax is not payable.

If one person takes on a larger share, they may need to pay Stamp Duty Land Tax.

An example of when Stamp Duty Land Tax may be payable

Two people own a farm jointly in equal shares. It’s valued at £2 million. They split the ownership of the farm geographically and each takes 50% of the land.

If the value of each half of the land is the same, then no Stamp Duty Land Tax is due.

But in this example the land taken by person 1 includes the farmhouse and farm buildings. This owner’s land is worth £500,000 more than the land that the other owner, person 2, takes. The shares are:

person 1 — £1,250,000

person 2 — £750,000

Person 1 compensates person 2 and pays them £250,000.

Stamp Duty Land Tax is payable on this £250,000 because it’s more than the current threshold.

If you take a larger share as a gift

If you take a bigger share but do not pay anything in return, there’s no ‘chargeable consideration’ given including taking on liability for a mortgage. You will not pay Stamp Duty Land Tax, even if the value of the extra part of the share is more than the Stamp Duty Land Tax threshold . You do not need to tell HMRC about the transaction.

If you transfer the outstanding mortgage

Joint owners (this may include unmarried couples who are splitting up) may agree that just one of them will take over ownership of a property they bought together, including any outstanding mortgage.

In this case the person taking ownership will pay Stamp Duty Land Tax on the total chargeable consideration of either or both of the following, if it exceeds the Stamp Duty Land Tax threshold :

• any cash payment that one of the couple makes to the other for their share
• the proportion of the outstanding mortgage that belongs to the share of the property being transferred

An example of when you pay Stamp Duty Land Tax when you transfer ownership

Two people own a house equally together and:

• it’s valued at £550,000
• they have equity in the property of £350,000
• they have an outstanding mortgage of £200,000

In October 2022, they transfer ownership so that one of them will have sole ownership of the property. The new sole owner:

• pays cash for half of the equity — £175,000
• becomes responsible for the other person’s half of the outstanding mortgage — £100,000

The chargeable consideration for Stamp Duty Land Tax is £275,000, made up of the:

The new sole owner pays £1,250 Stamp Duty Land Tax (0% of £250,000 + 5% of £25,000) and must tell HMRC by filling in a Stamp Duty Land Tax return .

If the transfer occurred before 23 September 2020, different thresholds and rates of Stamp Duty Land Tax are applied .

If you get land or property as a gift or from a will

If you’re left land or property in a will.

If you get land or property under the terms of a will, there’s no need to tell HMRC and you will not pay Stamp Duty Land Tax. This applies even if you take on an outstanding mortgage on the property on the date the person died. This is on condition that no other chargeable consideration is given.

If you’re given property as a gift

If you get property as a gift you’ll not pay Stamp Duty Land Tax as long as there’s no outstanding mortgage on it.

You’ll pay Stamp Duty Land Tax if you take over some or all of an existing mortgage and the value of the mortgage is over the Stamp Duty Land Tax threshold .

An example of when Stamp Duty Land Tax is payable if you’re given property as a gift

The owner of a property decides to transfer half of their share to their spouse. The owner does not take a cash payment for this share, but there’s an outstanding mortgage on the property.

Their spouse takes on the responsibility of 50% of the outstanding mortgage. If the amount outstanding that their spouse takes on is more than the current threshold, Stamp Duty Land Tax is payable.

HMRC must be told about the transaction by filling in a Stamp Duty Land Tax return .

If you transfer land or property to or from a company

When property is transferred to a company, Stamp Duty Land Tax may be payable on its market value, not the chargeable consideration given. For example, if a property has a market value of £300,000 but the company only pays a chargeable consideration of £150,000, Stamp Duty Land Tax will still be payable on £300,000.

This applies in either of the following situations, the:

• person who transfers the property is ‘connected’ with the company — the definition of a connected person covers relatives and people who’ve some involvement with the company
• company pays for the property with shares in the company (partly or wholly) to the person making the transfer, where that person is connected to the company (but not necessarily the acquiring company)

You may pay a higher rate of Stamp Duty Land Tax on purchases of additional residential properties .

The examples of when you pay Stamp Duty Land Tax when no money changes hands, when you transfer ownership and when you transfer land or property to or from a company have been updated to align with the nil-band threshold rate change on 23 September 2022.

The example under the 'If you're given property as a gift' section has been updated to make it more accurate.

Example 2 has been updated as the SDLT holiday rates ended on 30 September 2021.

Purchase deadlines extended for reduced rates for Stamp duty Land Tax.

The government has temporarily increased the nil rate bands of residential Stamp Duty Land Tax from £125,000 to £500,000.

From 1 April 2018 SDLT will no longer apply in Wales. You'll pay Land Transaction Tax which is dealt with by the Welsh Revenue Authority.

First published.

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Buying a business

When you buy a business in NSW, you must pay transfer duty if the sale includes land or an interest in land, such as a lease.

If it does, you may also need to pay transfer duty on the assets used to operate the business, including  warehouse equipment and computers.

Transfer duty is due three months after you sign the business sale agreement.

Assets included

A business is any activity you do regularly with the aim of making a profit.

It does not need to be a company, corporation, partnership or have any formal organisation. It can be any size. Selling homemade jam at a local market each Sunday is a business.

To work out the value of your business, include:

• land and property
• interest in land, such as a lease
• plant and equipment
• shares and units
• goods that are not stock-in-trade, under manufacture, or excluded from transfer duty.

You may also need to pay a $10 transfer duty for any:

• sale of a business agreement
• duplicate sale of a business agreement
• transfer of lease
• transfer in conformity to the agreement.

Read more about the assets you must pay transfer duty on in section 11 of the Duties Act 1997 .

Excluded assets

Generally, you will not pay transfer duty on:

• goods that are stock-in-trade
• manufacturing materials, or anything under manufacture
• assets used on land for primary production
• registered vehicles
• ships or vessels.

The exception applies to assets that cannot be moved from the property.

From 30 June 2016, you also no longer have to pay transfer duty on:

• gaming machines
• intellectual property used in NSW
• licences or permissions under NSW law or Commonwealth law, if used in NSW, such as a taxi licence or water access licence
• the goodwill of a business, if it supplies goods or services in NSW.

You must pay transfer duty on these assets if your agreement is replacing one made before 1 July 2016 for the same business property and assets.

Under section 26 of the Duties Act

The Chief Commissioner will disregard the value of the goods in a dutiable transaction if the dutiable value of the other dutiable property does not exceed 10 per cent of the dutiable value of all the dutiable property in the transaction.

The Chief Commissioner will not disregard the value of the goods if the other dutiable property exceeds 10 per cent of the dutiable value of all the dutiable property in the transaction.

• Stock in trade $50k
• Goodwill $200k

The dutiable property in this example (from 1 July 2016) comprises the lease and the goods the total dutiable value of which is $100k.

As the dutiable value of the leasehold interest being transferred exceeds 10% of the dutiable value of the dutiable property (being $15k / $100k = 15%), the Chief Commissioner will not disregard the value of the goods in this transaction and ad valorem duty is payable on $100k.

• Goodwill $1k

The dutiable property in this example (from 1 July 2016) comprises the transfer of the lease and the goods the total dutiable value of which is $100k.

As the dutiable value of the leasehold interest being transferred does not exceed 10 per cent of the dutiable value of all the dutiable property in the transaction (being $1k / $100k = 1%), the Chief Commissioner will disregard the value of the goods and ad valorem duty is payable on $1k.

Buying land and assets under separate contracts

Transfer duty is calculated as though it's one transaction when land and business goods are sold under different agreements, but as part of the same arrangement, including:

• agreements containing an inter-dependency clause
• where the parties entered into options before making the final agreements.

The buyers and sellers do not need to be the same parties on each agreement for it to be the same arrangement.

Read more about the aggregation of dutiable transactions.

When you buy a  business, the assets not liable for transfer duty include:

• $25,000 intellectual property
• $25,000 stock-in-trade

Liable assets include:

• your  factory, valued at $500,000
• your plant and equipment, valued at $100,000, if they've been transferred with the land as part of the business.

You must pay transfer duty on the value of your property, plus the value of your plant and equipment:

• Land + liable goods = $500,000 + $100,000 = $600,000
• Transfer duty owed = $22,490

Calculating transfer duty

The easiest way to work out how much transfer duty you'll need to pay is by using our online calculator.

Calculate your transfer duty

Contact us for more information on buying a business and paying transfer duty.

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06 February 2017

Stamp Duty issues in slump sale transactions

by Rohit Subramanian

Slump sale is a commonly used method of business acquisition wherein an undertaking as a “going concern” is transferred from one entity to another. The term ‘ slump sale ’ incorporated under the Income Tax Act, 1961 [See End Note 1] (“IT Act”) has been defined to constitute the following elements: (a) sale of an undertaking/business activity [See End Note 2] taken as a whole – lock, stock and barrel ; (b) sale shall be for a lump sum consideration; and (c) no separate values shall be assigned to individual assets and liabilities.

However, specific values can be assigned to individual assets or liabilities for the sole purpose of payment of stamp duty, registration fees or other similar taxes or fees. This is because the assets constituting the business in a slump sale transaction may include movable property (tangible and intangible, including intellectual property), immovable property (land, buildings, plant & machinery that are permanently fixed or embedded to the earth), unsecured loans, advances/deposits, human resources and contracts, and stamp duty chargeability and registration requirement for each type of asset/liabilities shall vary. In order to give effect to the transaction, the parties typically enter into a Business Transfer Agreement (“BTA” or “Agreement”), which inter alia records the following terms and conditions: 

• The assets of the business undertaking to be transferred to the Purchaser are listed in the schedule to the Agreement;
• The lump sum consideration for sale is specified ( sale price is generally based on a business valuation report );
• The BTA shall specify the date (“Closing Date”), prior to which all necessary approvals, permissions, documents to consummate the transaction are obtained;
• Typically, the seller shall make requisite representations and warranties with respect to the legal status and financial health of the business undertaking as on the Closing Date;  
• Upon obtaining all requisite documents and approvals, the transfer of business takes place on the Closing Date.

Stamp Duty chargeable on BTA

Stamp duty is a duty payable upon the execution of certain instruments or documents specified in the Indian Stamp Act, 1899 (“IS Act”) or the relevant state Stamp Act as the case maybe. In absence of any State stamp legislation, the IS Act applies. The general principle with regard to stamp duty is that duty has to be determined with reference to an instrument, not in reference to a transaction.[See End Note 3] Therefore, to understand the stamp duty liability for a specific transaction, it is important to understand the instruments involved in the transaction and the subject-matter of the instrument.[See End Note 4]

It is common practice for a BTA to be structured as an “ agreement to sale ”. In such cases, the Agreement provides a general framework pursuant to which the business undertaking is transferred on the Closing Date. BTA in itself may not contemplate any transfer and can mandate the execution of a deed of “ conveyance ”[See End Note 5] on or before the Closing Date to effectuate the transfer. However, there are instances where the Agreement contains recitals with respect to the payment of consideration, handing over of the possession of property along with title deeds of such property. In such cases, the BTA assumes the color of a “conveyance” and stamp duty is levied accordingly.

Since the transfer envisaged under the Agreement is the sale of a business undertaking as a whole, it cannot be specifically equated with the sale of movable or immovable property. The IS Act as well as State Stamp Acts do not contain specific provisions levying duty on an agreement relating to the transfer of “business” as such. Therefore, it is imperative that each asset proposed to be transferred to the purchaser vide a BTA is individually identified for the purpose of stamp duty as movable or immovable. The levy of stamp duty depends on the State in which the Agreement is executed. For better clarity, let us examine the stamp duty implications on a BTA under Central and certain State legislations.

Positon under the Indian Stamp Act, 1899

On perusal of the definition of “conveyance” under the IS Act, it is understood that no distinction is made between moveable and immovable property.[See End Note 6] Tangible moveable property can be sold by delivery to the purchaser on receipt of the price without an actual conveyance, but if a conveyance in writing comes into existence, it is chargeable to duty as such. Intangible movable property such as actionable debt or goodwill has to necessarily be transferred under a written instrument and chargeable as conveyance. Whereas land/buildings are immovable property, machinery installed in a factory premises (fixed to the ground) can be considered as an immovable property, depending on the degree and permanency of the attachment, and the purpose of installing and attaching the machinery. For instance, the sale of a fertilizer plant as part of a slump sale along with land and building, would be considered as immovable property if it was always intended that the plant remains permanently affixed to the land and building being transferred.[See End Note 7]

Article 5 to the Schedule of the IS Act prescribes the stamp duty chargeable on an “ Agreement or Memorandum of an Agreement ”. Article 5 further sub-classifies several categories on the basis of the subject-matter of an agreement prescribing specific duty applicable to a particular instrument. A residuary provision is provided under Article 5(c) wherein all such agreements not specifically provided for are classified and duty payable is separately prescribed.

If a contract does not intend to operate as an immediate transfer of the sale of property, such instrument is required to be stamped as an agreement rather than a conveyance. An agreement to sell a business undertaking with its assets including goodwill, would not amount to conveyance but would be merely a contract to sell, although the parties intended that when the transaction was completed, it should take effect from the date of the agreement and although in order to effect the contemplated sale, no actual deed of conveyance was prepared subsequently with regard to goodwill and movables (a sale deed being executed only in respect of immovable property).[See End Note 8]

Therefore, under the IS Act, a BTA not evidencing a transfer of property shall be duly stamped as an agreement under Article 5(c), thereby requiring deed of conveyance to be executed on or before the Closing Date. Whereas the execution of a conveyance deed for the purpose of immovable property is absolutely necessary to establish title and ownership, transfer of ownership of movable property can be made by delivery of such property. In the event the BTA records the transfer of both movable and immovable property without the requirement of executing a conveyance deed, the BTA shall be construed as a conveyance and stamp duty as prescribed under Article 23 would be leviable on the said instrument.   

Position under the Bombay Stamp Act, 1957 (“BS Act”)

The BS Act follows a scheme similar to the IS Act, wherein Article 5 of its Schedule prescribes stamp duty to be levied on an instrument which is an “ Agreement or its records or Memorandum an Agreement ”. It is to be noted that Article 5(h)(A)(iv) specifically identifies an agreement that: (a) creates any obligation, right or interest; (b) has monetary value; and (c) is not covered under any other provision of the BS Act.

The stamp duty chargeable may extend up to two rupees for every thousand rupees of the monetary value stated in the Agreement. An agreement in the nature of a BTA squarely falls under Article 5(h)(A) of the BS Act. Despite the generic nature of the description in Article 5(h)(A), the BS Act has retained a residuary provision under Article 5(h)(B) which prescribes stamp duty of only INR Hundred (100) with respect to agreements not otherwise provided for. Given that Article 5(h)(A) describes the instrument more specifically, a BTA executed in the State of Maharashtra should be duly stamped under Article 5(h)(A) rather than Article 5(h)(B).

Article 25 of the BS Act prescribes the stamp duty payable on an instrument of conveyance with respect to movable and/or immovable property, as the case may be. However, the BS Act specifically states that if an agreement to sell an immovable property effectuates the transfer of possession of such property before or after execution, the same shall be deemed to be a conveyance and stamp duty shall be levied accordingly. The BS Act also provides an exemption in case the ‘ agreement to sale ’ is deemed as a conveyance. That is, in case the BTA itself effectuates the transfer of movable and immovable property constituting the business, resulting in such instrument being duly stamped as conveyance under Article 25 of the BS Act, the stamp duty paid on such agreement shall be adjusted towards the total stamp duty leviable on the conveyance deed.

Position under the Karnataka Stamp Act, 1957 (“KS Act”)

The KS Act deviates from the BS Act as well as the IS Act, in light of specific provisions dealing with the transfer of movable and immovable property under Article 5 of KS Act. Article 5(e) of the KS Act prescribes the stamp duty chargeable on an agreement relating to sale of immovable property with part-performance of the contract being made. In the event possession of the property is delivered or agreed to be delivered prior to execution of conveyance, the stamp duty prescribed is the same as the duty prescribed with respect to a conveyance deed as specified in Article 20. Similar to the BS Act, the KS Act also provides for set-off of the stamp duty against the duty paid on the conveyance deed. In the event possession of the property is not delivered, the stamp duty liability on such agreements shall be restricted to INR twenty thousand.

Similarly, Article 5(g) of the KS Act prescribes the stamp duty payable with respect to an agreement relating to the sale of movable property. In the event possession of movable property is delivered or agreed to be delivered without executing a conveyance deed, the stamp duty prescribed on such agreement is three percent (3%) of the consideration or the market value of the property, whichever is higher. In the event the possession of the property is not delivered, the stamp duty liability is restricted to INR twenty thousand. Apart from these provisions, a residuary clause under Article 5(j) of the KS Act provides that any agreement not specifically provided for in Article 5 shall be duly stamped for INR two hundred. Therefore, the stamp duty payable on a BTA executed in the State of Karnataka shall depend upon the structure of the BTA, whether conveyance deed is proposed to be executed by the parties with respect to the movable properties forming part of the business undertaking and whether a business undertaking purported to be transferred under a BTA can be equated to a movable property or an immovable property.

Word of caution

BTA typically comprises of numerous items of transfer, which may include all kinds of tangible, intangible, contracts, movable property and immovable property. While a slump sale transaction is the preferred mode of business acquisition from an income-tax perspective, given the complexities involved in the determination of stamp duty on the instrument of transfer, it is recommended that the parties should approach the relevant stamp authority for adjudication of stamp duty [See End Note 9] and seek the opinion of the District Officer with respect to the determination of the duty chargeable on the instrument, if there is any ambiguity in the concerned Stamp Act. It is always necessary and beneficial for the parties to treat stamp duty aspects very carefully to avoid any penalties, which can be as high as ten times the actual stamp duty payable. 

[ The authors are Associate and Joint Partner, respectively in Corporate Practice, Lakshmikumaran & Sridharan, Bengaluru ]

• Section 2(42C) of the Income Tax Act, 1961
• Explanation 1 to Section19AA defines “ undertaking ” to include any part of an undertaking, or a unit or division of an undertaking or a business activity taken as a whole , but does not include individual assets or liabilities or any combination thereof not constituting a business activity.
• Swadeshi Cotton mills Co, in Re AIR 1932 All 29.
• Section 2(14) of the IS Act defines “ Instrument ” to include every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded.
• In terms of the IS Act, the term “conveyance” has been defined in an exhaustive manner to include any instrument or conveyance on sale, by virtue of which any property (moveable or immovable) is transferred inter vivos and which is not specifically provided in the schedule to the IS Act.
• "Immovable property" includes land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth and “movable property” includes any property except immovable property.
• Duncans Industries Ltd v. State of UP, AIR 2000 SC 355.
• In Re, Swadeshi Cotton Mills Co 1932, ALJ 394: AIR 1932 ALL 291 (SB) and others.
• Section 31 of the IS Act, BS Act and the KS Act.

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Basis of taxation

Stamp duty is chargeable on instruments and not on transactions. If a transaction can be effected without creating an instrument of transfer, no duty is payable.

An unstamped or insufficiently stamped instrument is not admissible as evidence in a court of law, nor will it be acted upon by a public officer.

Assessment and payment of stamp duty can be made electronically via the Stamp Assessment and Payment System.

Rates of duty

The rates of duty vary according to the nature of the instruments and transacted values. Generally, transfer of properties can give rise to significant stamp duty:

a. Properties (other than shares, stock or marketable securities)

b. Non-listed shares, stock or marketable securities

RM3 for every RM1,000 or any fraction thereof based on consideration or value, whichever is greater. The Stamp Office generally adopts one of the 2 methods for valuation of unlisted ordinary shares for purposes of stamp duty:

-    net tangible assets; or -    sale consideration.

c. Shares or stock listed on Bursa Malaysia

RM1.50 for every RM1,000 or any fraction thereof based on the transaction value.

d. Listed marketable securities

RM1 for every RM1,000 or any fraction thereof based on the transaction value.

e. Service Agreements and Loan Agreements

Stamp duty of 0.5% on the value of the services / loans. However, stamp duty may be remitted in excess of 0.1% for the following instruments:

1.   Service agreement

2.   Loan agreement / loan instrument

Malaysian Ringgit loan agreements generally attract stamp duty at 0.5% However, a reduced stamp duty liability of 0.1% is available for Malaysian Ringgit loan agreements or instruments without security and repayable on demand or in single bullet repayment.

Stamp duty on foreign currency loan agreements is generally capped at RM2,000.

Instruments executed in Malaysia which are chargeable with duty must be stamped within 30 days from the date of execution. When the instruments are executed outside Malaysia, they must be stamped within 30 days after they have first been received in Malaysia.

The penalty imposed for late stamping varies based on the period of delay. The maximum penalty is RM100 or 20% of the deficient duty, whichever is higher.

Relief / Exemption / Remission from stamp duty

Examples of the exemptions, remissions or reliefs of stamp duty available are as follows:

1.  Merger and acquisition

Relief on the transfer of the undertakings or shares under a scheme of reconstruction or amalgamation of companies (conditions apply).

• Relief on the transfer of assets between associated companies , where either company owns 90% or more of the other company, or where a third company owns 90% or more of both associated companies (conditions apply).
• Stamp duty exemption on qualifying instruments executed for the merger and acquisition of Micro, Small and Medium Enterprises (MSMEs) approved by the Ministry of Entrepreneur Development and Cooperatives from 1 July 2020 to 30 June 2022 and executed by 31 December 2022.

2.   Financing instrument

• Stamp duty exemption on loan / financing agreements executed from 1 January 2022 to 31 December 2026 between MSMEs and investors for funds raised on a peer-to-peer platform registered and recognised by the Securities Commission (SC). 
• Stamp duty exemption on instrument of agreement for a loan or financing in relation to a Micro Financing Scheme (approved by the National Small and Medium Enterprise Development Council) between a borrower and a participating bank or financial institution.
• Stamp duty exemption on all loan or financing instruments in relation to the Professional Service Fund for an amount up to RM50,000 between a borrower and Bank Simpanan Nasional.
• Stamp duty exemption on all instruments of an Asset Sale Agreement & Asset Lease Agreement executed between a customer and a financier made under Syariah law principles for renewing any Islamic revolving financing facility , provided the instrument for existing facility is duly stamped.

Stamp duty on any instruments of an Asset Lease Agreement executed between a customer and a financier made under the Syariah principles for rescheduling or restructuring any existing Islamic financing facility is remitted to the extent of the duty that would be payable on the balance of the principal amount of the existing Islamic financing facility, provided the instrument for existing Islamic financing facility has been duly stamped.

Stamp duty exemption on all instruments relating to the purchase of property by any financier for the purpose of leaseback under the principles of Syariah or any instrument by which the financier shall assume the contractual obligations of a customer under a principal sale and purchase agreement.

• Stamp duty exemption on loan or financing agreements executed from 1 July 2021 to 31 December 2022 (extended to 31 December 2024) in relation to restructuring or rescheduling of business loans due to the inability of the borrower to comply with existing repayment schedule consequent to deteriorating financial conditions.

3.   Instrument of transfer

• Remission of 50% of stamp duty chargeable on the instrument of transfer of immovable property operating as voluntary disposition between parent(s) and child and vice versa, provided that the recipient(s) is a Malaysian citizen. 
• Stamp duty exemption on the instrument of transfer of property (executed from 1 April 2023) by way of love and affection between parents and children, grandparents and grandchildren, limited to the first RM1 million of the property’s value, provided the recipients are Malaysian citizens. The balance of the property’s value is given 50% remission on the ad valorem stamp duty imposed. 
• Exemption for instruments of transfer of immovable property operating as voluntary disposition between husband and wife.
• Stamp duty exemption on all instruments of transfer of land, business, asset and share in relation to the conversion of a conventional partnership or a private company to be a limited liability partnership .

4.  Purchase of first residential property

• Stamp duty exemption on the instrument of transfer and loan agreement for purchase of first residential property

Note 1 Purchase of first residential home by a Malaysian citizen

• Stamp duty exemption on the instrument of transfer in relation to the purchase of the first residential property valued at not more than RM500,000 by a Malaysian citizen under the National Housing Department’s Rent-to-Own (RTO) scheme. The exemption is given at 2 stages of transfer, i.e. from the property developer (PD) to a qualifying financial institution (FI), and from the FI to the Malaysian citizen. The exemption is subject to execution of the following agreements during the period from 1 January 2020 to 31 December 2022, i.e. sale and purchase agreement between the PD and FI and RTO agreement between the FI and the Malaysian citizen. 

5.  Abandoned housing projects

•  Stamp duty exemption on instruments executed by a rescuing contractor or a developer approved by the Minister of Housing and Local Government to carry on rehabilitation works for an abandoned project . The instruments are loan agreements approved by the approved financier and instruments of transfer for the purpose of transferring revived residential property in relation to the abandoned project which are executed by 31 December 2025.
• Stamp duty exemption on instruments executed by an original purchaser , whose name is stated in the Sale and Purchase Agreement in relation to an abandoned project , or his beneficiary. The instruments are loan agreements approved by the approved financier and instruments of transfer which are executed by 31 December 2025.

6.   Others

• Stamp duty exemption on specified instruments for the purpose of a securitisation transaction.
• Stamp duty exemption on all instruments relating to the issue of, offer for subscription or purchase of, or invitation to subscribe for or purchase debentures or Islamic securities approved by the SC and the transfer of such debentures or Islamic securities.
• Stamp duty in excess of RM1,000 is remitted for all instruments of contract notes relating to the sale of shares or stock which are listed on an approved stock exchange.
• the sale of marketable securities which are listed on an approved stock exchange.
• the sale of shares, stocks or marketable securities in companies incorporated in Malaysia or elsewhere between a local broker and an authorised nominee on behalf of a foreign broker.

Stamp duty exemption on contract notes for sale and purchase transaction of structured warrant or exchange-traded fund approved by the SC, executed by 31 December 2025.

• Stamp duty exemption on Perlindungan Tenang insurance policies and takaful certificates issued from 1 January 2022 to 31 December 2025 with a yearly premium / contribution not exceeding RM150.
• Stamp duty exemption for individuals and MSMEs on insurance policies for fire, fire business interruption, personal accident, travel, liability, engineering (with annual premium / contribution value not exceeding RM150 for individuals and RM250 for MSMEs, respectively) issued from 1 January 2022 to 31 December 2025.

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Why stamp duty cannot be an afterthought in deals and restructurings

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Companies should remember to include stamp duty as part of their planning as it may have an impact on investment return or deal cost. .

The Business Times reported on 22 December 2021 that mergers and acquisitions (M&A) activity in Singapore burgeoned to record highs in 2021, up 70.4% from the previous year. Reportedly, start-ups and venture capital activities are on the rise. So are the interests in initial public offerings (IPOs) to raise capital as market confidence returns. Elsewhere, global IPO activities have continued to increase. 

Amidst all these corporate activities, stamp duty 1 is not always given due attention. Not that it is not a subject of deliberation; rather, it is left out of detailed deliberation in the initial planning processes.  

Stamp duty exposure almost always lurks around – quietly – in many corporate transactions. Yet, its presence and relevance are often detected late into the transaction, or worse, detected after the completion of the transaction.

Given that stamp duty can have a direct impact on the investment return or deal cost, depending on who bears the stamp duty, stamp duty should not be an afterthought. This article discusses stamp duty in general and does not discuss additional conveyance duties (ACD), which may apply if the company is classified as a property-holding entity (PHE) i.e., at least 50% of the market value of the company is made up of residential properties (held directly or indirectly).

The basic rules

Stamp duty is a form of tax or duty imposed on certain legal and commercial instruments 2 . This generally includes any contract or agreement for the sale or transfer of Singapore immoveable property and share transfer form for the sale or transfer of shares in a Singapore incorporated company 3 . From 2018, stamp duty is also levied on electronic records that effect a transfer of interest in immovable property and shares. The stamp duty is generally borne by the transferee (i.e., acquirer), unless otherwise contractually agreed. 

The stamp duty rate differs depending on the instrument. For example, in the case of a share transfer, the stamp duty rate is 0.2% on the higher of the purchase consideration and the value 4 of the shares. 

Examples of Singapore stamp duty considerations

1. Share versus asset transfer 

At times, a deal may take the form of either a transfer of shares or a transfer of assets while still achieving the commercial goals. As stamp duty is only applicable on certain transfer instruments and the stamp duty rate differs depending on the instrument, the choice of either one or the other can impact whether stamp duty may be applicable and the associated stamp duty costs. 

2. Pre- and post-deal restructuring 

Companies may undertake pre-deal restructuring to carve out relevant businesses into a new business vertical or post-deal restructuring to realign the shareholding ownership and integrate the acquired business into the group. To eliminate the need for physical cashflows and creating intercompany debt, which may give rise to transfer pricing considerations, such restructurings may sometimes involve the transfer of shares of Singapore companies through a series of steps (via contribution or otherwise) rather than directly from the seller to the end buyer. It is important to note that each of these transfers may trigger Singapore stamp duty notwithstanding that the series of steps are completed within the same day. 

 3. Stamp duty relief 

In an internal group restructuring, stamp duty relief may be available, subject to meeting prescribed conditions. These conditions are technical in nature. They are not always easy to meet. But when met, no stamp duty is chargeable on the instrument that conveys, assigns or transfers the interest (as the case may be).   

For example, one of the conditions for relief requires that there must be valuable consideration paid by the transferee to the transferor for the transfer. This essentially means that where shares in a Singapore company are transferred by way of a distribution-in-specie, stamp duty relief will not be available as there is no consideration to be paid by the transferee.

As another example, the value at which the shares are transferred (i.e., consideration) is a commercial matter decided at the discretion of the transferor and the transferee.  But the question of at what value the shares are transferred becomes highly relevant when it comes to stamp duty relief application. In general, to qualify for relief, the shares in the Singapore company must be transferred at open market value (or net asset value (NAV) where used as a proxy). However, in an internal group restructuring exercise, companies may prefer not to record a gain or loss for accounting purposes. In this respect, the use of book value instead of NAV as the transfer value is only permissible for stamp duty relief purposes if the transferor and transferee are wholly associated with each other.

Even when stamp duty relief is granted, there is two-year moratorium on the disposal of the shares in the Singapore target company by the transferee and the disposal of the shares in the transferee company that may have been issued to the transferor as consideration. Failure to adhere to the moratorium conditions will result in a clawback of the stamp duty payable as well as a 6% interest charge. Hence, it is important for companies to consider their future business plans when assessing whether to go for stamp duty relief. 

A formal application with relevant supporting documentation has to be submitted to the Inland Revenue Authority of Singapore (IRAS) for approval before stamp duty relief will be granted. It is thus a good practice to always deliberate the potential for qualification at the initial planning stage, particularly given that some time may be needed to prepare the stamp duty relief application package and the time needed for the IRAS to provide approval or in-principle approval may have an impact on subsequent steps in the overall restructuring step plan. 

This may be the case where for example, there are interdependencies in the restructuring step plan that requires the share register of the Singapore company to be updated to reflect the new shareholder (being the transferee) before a subsequent step can take place. For updating of the share register, the share transfer instrument will have to be duly stamped (i.e., stamp duty paid) or a stamp duty certificate of adjudication must be received from the IRAS confirming the relief. The former may not be ideal as it has a negative cashflow impact in that there would be some time lapse before a refund is obtained from the IRAS for the stamp duty paid. 

With proper planning at the beginning of the deal cycle, companies can avoid surprises in stamp duty that can inadvertently drive up the cost of deal and compromise its investment returns.

The co-authors of this article are James Choo , Partner, International Tax and Transaction Services from Ernst & Young Solutions LLP and Aw Hwee Leng, Associate Partner, International Tax and Transaction Services from EY Corporate Advisors Pte. Ltd.

Show article references#Hide article references

1 In Singapore, the intricacies of stamp duty are governed under the Stamp Duties Act (Chapter 312) (the Act).

2 An instrument is defined to include any written document and is chargeable with duty if it is specified in the First Schedule of the Act.

3 Remission from Singapore stamp duty on contracts and agreements for the sale of stock or shares is provided under the Stamp Duties (Agreements for Sale of Equity Interest) (Remission) Rules 2018, in so far as they concern listed shares in the CDP system and unlisted shares that are not subject to additional conveyance duty (ACD).

4 “Value” is not defined in the Act. In practice, as an administrative concession, the IRAS accepts the net asset value of the target company as a proxy of the value of the shares transferred when the open market value of the shares is not otherwise available. This is provided that the target company is a private company incorporated more than 18 months ago, and where it does not own any immovable property (e.g., real estate). If the target company owns any interest in immovable property, the market value of the property as at the date of statement of accounts or management accounts should be used in place of the book value if the book value is not reflective of the market value.

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• Ad valorem stamp duty (AVD)
• Buyer's Stamp Duty (BSD)
• Special Stamp Duty (SSD)
• Stamp duty on transactions under Shanghai Connect and Shenzhen Connect
• Stamp duty on Mutual Recognition of Funds between the Mainland and Hong Kong
• Documents subject to Stamp Duty
• Methods of Stamping
• e-Stamping Service
• Rates of Stamp Duty
• Persons Liable for Stamping
• Time Limit for Stamping Different Types of Documents
• Late Stamping and Omission to Stamp Documents
• Validity of Unstamped Documents
• Inadequate Consideration
• Stamp Duty Assessment
• Refund, Adjudication & Appeal against Assessment
• Stamp Duty on Residential Property Transactions
• Stamping of contract note for non-HKD listed products (such as RMB and USD)
• Exchange Rates for RMB and USD
• Stamp Duty Relief
• Electronic Registration of Stock Borrowing and Lending Agreement (SBLA)

Approved standard versions of SBLA

• Refund of Stamp Duty
• Exclusion from application of the Electronic Transactions Ordinance(Cap.553)
• Profits Tax Liabilities on Property Dealing
• Stamp Office Interpretation and Practice Notes
• Stamping Procedures and Explanatory Notes
• Stamping Circulars
• e-Stamping Circulars
• Levy collection for Property Management Services Authority

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Stamp Duty Relief  

Intra Group Relief

Subject to the conditions set out in section 45 of the Stamp Duty Ordinance ("the Ordinance"), stamp duty relief is available for the transfer of immovable property or shares from one associated body corporate to another. Please refer to the Stamping Procedures and Explanatory Notes on “Intra Group Relief” [IRSD124] for the application procedures.

Stock Borrowing Relief

Transfer of shares under stock borrowing and lending transactions may be exempted from stamp duty. For details, please refer to the Stamp Office Interpretation and Practice Notes on “Relief for Stock Borrowing and Lending Transactions” . Please also refer to the Stamping Procedures and Explanatory Notes on “Stock Borrowing Relief – Revised Procedures” [U3/SOG/PN06A] for the application procedures.

Islamic Bond Scheme Relief

Where specified conditions are met, sections 47E, 47F and 47G of the Ordinance provide stamp duty relief on the transfer of bonds and certain instruments, not otherwise required in the case of conventional bonds, issued or executed under Islamic bond schemes solely for compliance of Sharia principles. For details, please refer to the Stamp Office Interpretation and Practice Notes No. 6 on “Alternative Bond Schemes”

Electronic registration of Stock Borrowing and Lending Agreement (SBLA) 

Stamp Office has launched a new electronic service allowing online registration of SBLA via e-Tax with effect from 23 April 2012. Please refer to the Stamping Procedures and Explanatory Notes on "Stock Borrowing Relief - Electronic Registration of Stock Borrowing and Lending Agreement" [U3/SOG/PN08A] for details.  

Screen shots of the e-registration services

• Stock Borrowing and Lending Agreement Registration
• Filing of Notification by Stock Lender
• Download Approval Letter

Miscellaneous relief on Stock Transactions 

Exclusion from application of the Electronic Transaction Ordinance (Cap.553)    

Other than contract notes issued and stamped by stock brokers in respect of a trade effected through the Stock Exchange, all instruments subject to stamping or denoting under the Stamp Duty Ordinance (Cap. 117) cannot be made or executed by electronic means.  

Profits Tax Liabilities on Property Dealing    

Duty payers are reminded that despite the payment of stamp duty, there are also profits tax liabilities in respect of the assessable profits from the buying and selling of landed properties in the course of a trading adventure in Hong Kong.

Stamping Procedures and Explanatory Notes    

1. Hong Kong Stock

2. Landed Properties

3. Remission

4. Procedures

****************************************************************

1. Hong Kong Stock  

• U3/SOG/PN03A Stamp Duty (Amendment) (No. 2) Ordinance 2000 Exemption - Instruments of Transfer of Units under Mandatory Provident Fund Schemes
• U3/SOG/PN04A Stamping of Share Transfer
• U3/SOG/PN06A Stock Borrowing Relief - Procedures Registration of Stock Borrowing and Lending Agreement and Filing of Return of Stock Borrowing Transactions
• U3/SOG/PN07A Stamp Duty Exemption - Instruments of Transfer relating to Indirect Allotment or Redemption of (1) Units under Unit Trust Schemes and (2) Shares under Open-ended Fund Companies
• U3/SOG/PN08A Stock Borrowing Relief - Electronic Registration of Stock Borrowing and Lending Agreement
• U3/SOG/PN09A Stamp Duty Relief for the Transactions and Transfers of Regulatory Capital Securities
• U3/SOG/PN10A e-Stamping of Share Transfer Instruments

2. Landed Properties  

• U3/SOA/PN03 Chargeable Agreement for Sale Variation of Consideration prior to Assignment
• U3/SOA/PN04 Section 29/29G of the Stamp Duty Ordinance Series of Transactions
• I.R.S.D. 119(E) Stamping Procedures and Explanatory Notes Stamping of Tenancy Agreement
• I.R.S.D. 120(E) Stamping Procedures and Explanatory Notes Stamping of Agreements and Assignments
• I.R.S.D. 122(E) Stamping Procedures and Explanatory Notes Late Stamping of Agreement and Assignment

3. Remission  

• U3/SOG/PN01 Remission of Stamp Duty on Delivery of Hong Kong Stocks as Consideration for allotment or redemption of Collective Investment Products
• U3/SOG/PN05A Partial Remission of Ad Valorem Stamp Duty on Contract Notes for the Sale or Purchase of Designated Exchange Traded Funds by Market Makers (Only applicable to transactions of ETF shares or units effected before 13 February 2015)
• I.R.S.D. 128(E) Stamping Procedures and Explanatory Notes Remission or Refund of Stamp Duty Exchange Traded Funds (Only applicable to transactions of ETF shares or units effected before 13 February 2015)

4. Procedures  

• U3/SOG/PN02A Stamping Procedures and Explanatory Notes Counter Service
• I.R.S.D. 98 Notes On Appeal Procedures effective from 1 May 1998
• I.R.S.D. 124(E) Stamping Procedures and Explanatory Notes Intra Group Relief Transfer or Sale of Hong Kong Stock and Immovable Property

Stamping Circulars  

e-Stamping Circulars  

Forms  

1. e-Stamping

2. Property Stamping and Adjudication

3. Stamping of Share Transfers

4. Stock Borrowing Relief

5. Stamp Duty Relief and Refund

6. Stock Brokers

*****************************************************

1. e-Stamping  

2. Property Stamping and Adjudication  

3. Stamping of Share Transfers  

4. Stock Borrowing Relief  

5. Stamp Duty Relief and Refund  

6. Stock Brokers  

* PDF file can be opened by Adobe Acrobat Reader which is available at the Adobe Systems Incorporated .

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Victoria to abolish stamp duty for non-residential properties

The Victorian government will abolish stamp duty for commercial and industrial properties and replace it with an annual property tax in a move it says will inject $50 billion to the state economy.

From July 1 next year, commercial and industrial properties will transition to the new system as they are sold, and the annual property tax will be payable from 10 years after the transaction.

Treasurer Tim Pallas with the 2023-24 state budget.   AAP

Victorian Treasurer Tim Pallas said the changes would remove barriers to larger investments and accelerate business growth.

“Business and industry have told us they want this reform, and we’ve listened,” Mr Pallas said before the release of the state budget on Tuesday .

“These landmark changes will enable businesses to be more dynamic and agile, and to grow and employ more workers.”

Mr Pallas said the first purchaser of a commercial or industrial property after July 1, 2024, could choose to either pay the property’s final stamp duty liability as an upfront lump sum, or pay fixed instalments over 10 years equal to stamp duty and interest with a government-facilitated transition loan.

These arrangements will not apply to the current owner of any commercial or industrial property purchased before the middle of next year. But once a property enters the new system after this time, stamp duty will not be payable on a transaction and the annual property tax will apply.

Changes welcomed

The annual tax will be set at a flat 1 per cent of the property’s unimproved land value.

Victorian Chamber of Commerce and Industry chief executive Paul Guerra welcomed the changes, which do not apply to residential properties.

“The Victorian Chamber has been working with the state government on this landmark and generational productivity reform which businesses across Victoria will welcome,” he said.

“This is exactly the type of progressive tax reform that is required to free up stamp duty charges, which will accelerate building upgrades, stimulate investment in commercial property and free up more capital.”

The move comes after Premier Daniel Andrews last week said he was “unconvinced” that replacing stamp duty with an opt-in land tax – similar to the system introduced by the former NSW Coalition government – would be effective.

“I’m not entirely certain that it is everything that people make it out to be. You had a policy decision made in NSW, then when it got implemented it went from being a compulsory scheme with all these macro benefits … [to] an optional scheme,” he said.

“I don’t know they necessarily get all of that aggregated benefit if it’s not happening everywhere.”

He said while “everybody would like to pay less stamp duty”, the money helped fund essential public services, including wages for teachers, nurses and police. “It’s not quite as easy as, ‘We don’t like that particular revenue measure, let’s just get rid of it’,” Mr Andrews said.

Property tax experts said the new tax arrangements for commercial and industrial property were unique among the states.

While South Australia has abolished transfer duty on commercial or industrial property deals, it has not introduced an annual property tax. The ACT has removed stamp duty on transactions below $1.7 million, although it still imposes land rates. The Northern Territory retains stamp duty, but does not have a land or property tax.

NSW reforms wound back

In NSW, the Minns government is taking its first steps to wind back stamp duty reforms on residential properties unveiled just six months ago by the former Perrottet government.

Premier Chris Minns will introduce legislation into parliament this week to abolish Dominic Perrottet’s signature housing affordability package, which gave first home buyers a choice between paying stamp duty or an annual, lower property tax on homes valued up to $1.5 million.

The package was designed as a first step in a broader effort to overhaul stamp duty in the state, which Mr Perrottet consistently called out as holding back young buyers from entering the property market.

Spruiking the package before the election, Mr Perrottet said data behind the initiative showed it could shave 18 months off the time it took to save a housing deposit. But the initiative became a key election issue after Labor leader Mr Minns chose to oppose it, arguing that it favoured wealthier homebuyers.

In its place, Mr Minns proposed an extension to an existing stamp duty exemption offer for first homebuyers, lifting the outright exemption to homes valued up to $800,000 and offering a concessional rate to homes valued up to $1 million. The legislation to repeal the First Home Buyer Choice package is expected to pass the state’s lower house with the support of the Greens and at least two independents, whose support is relied on in the Minns’ minority government. It is also likely to pass in the upper house.

Experts ask for fine print

Of the Victorian policy, tax experts said key details in the new arrangements were yet to be revealed. Matthew Cridland, a partner at law firm K & L Gates, said the proposal raised “more questions than answers” including whether the new property tax would be payable in addition to land tax and council rates.

“How will the property tax work for a property that is a mixture of both residential and commercial premises, say a tower with office and residential premises?” Mr Cridland asked.

“What happens if land subject to property tax is merged with land that is not subject to property tax?”

Matthew Kandelaars, Victorian CEO of the Urban Development Institute of Australia, earlier this month warned that the state’s reliance on property tax was jeopardising housing affordability and the state’s overall economic recovery.

He told a Victorian parliamentary inquiry that property-related taxes represented more than half of the state’s taxation revenue. Annual property-related stamp duty receipts had increased by more than $6 billion, or more than 140 per cent, since 2014, he said.

“The overreliance on property taxes is a key driver of housing unaffordability,” Mr Kandelaars said.

“Although we have seen a plateauing of house prices, affordability has not eased at all. The purchasing power of the average Victorian family is under more stress than it has ever been.”

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NSW to lift stamp duty thresholds for first-home buyers and undo Perrottet reforms

Minns government says changes will mean more than 80% of first time buyers will pay no stamp duty or a reduced rate

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The New South Wales government has vowed to make changes to stamp duty thresholds to allow more first home buyers to access concessions.

The government says it will introduce legislation this week to increase thresholds for stamp duty concessions so that five out of six first home buyers pay a reduced rate or no stamp duty.

Changes to the first home buyers assistance scheme will mean properties worth up to $800,000 will be exempt from stamp duty, lifting it from $650,000. Concessions will apply to properties worth up to $1m, up from $800,000.

The government says that 84% of first home buyers will pay no stamp duty or a reduced rate under the reforms.

According to the NSW government, a first home buyer purchasing an $800,000 property will save up to $31,090 under the changes.

“I understand the stress of trying to purchase your first home. I want more singles, couples and families realising this dream,” premier Chris Minns said.

“This is a fairer and simpler system to ensure more first home buyers have a chance of owning their first property.”

Legislation passed in November by the former Coalition state government allowed first home buyers of properties worth up to $1.5m to choose to pay annual land tax instead of paying upfront stamp duty.

Labor opposed the scheme – describing it as a “forever tax on your home” – and had vowed to scrap it. The new government says it will introduce legislation this week to do so.

Access to the former government’s scheme will be closed off on 1 July when the new stamp duty rules come into force.

The government says its new legislation will also place tighter scrutiny around first home buyer concessions, by adding an eligibility requirement that purchasers live in the home for at least a year. The previous requirement was for buyers to live in the property for six months.

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The treasurer, Daniel Mookhey, said the move delivers a key election commitment.

“This policy will deliver the most help to the first home buyers most at risk of leaving the housing market altogether as interest rates go up.

“Now five out of every six first home buyers will get help to own the roof over their heads. It will benefit more first home buyers overall and more fairly goes to those who need it most.

“The new thresholds for stamp duty exemptions and concessions are a simpler and fairer way to help more first home buyers than the property tax, which helped a smaller cohort of first home buyers.”

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Victorian State Budget 2023-24: Stamp duty to be abolished on commercial and industrial properties

Stamp duty on commercial and industrial properties to be abolished and replaced with annual property tax., the new regime and how it will apply.

The 2023-24 State Budget saw the Treasurer announce a significant reform to Victoria’s duty regime, with duty on commercial and industrial properties to be replaced over time with an annual property tax.

The finer details of the new regime are unlikely to be known for some months as we understand the Government intends to consult with industry before introducing the relevant legislation into Parliament. However, based on the Government’s media release we understand the change will involve:

• From 1 July 2024, commercial and industrial properties will transition to the new system as they are sold, with annual property tax equal to 1% of the land’s unimproved value to be payable from 10 years after the sale transaction;
• The first purchaser of eligible property after 1 July 2024 will be able to choose whether to pay the final duty liability as an upfront lump sum, or as fixed instalments over 10 years together with an interest charge; and
• Once the property enters the new system after 10 years, no further duty will be payable when the property is sold and the annual property tax will then apply moving forward

The new regime will not apply to the current owner of any commercial or industrial property purchased before 1 July 2024.

What the new regime aims to achieve

The change is being promoted by the Government as a concessional measure which will help business growth in Victoria and boost the state’s economic activities and employment. It is intended to free up much needed capital for businesses and allow them to redirect this capital to expand operations and employ more staff.

We welcome the Government’s encouragement of commercial activities to grow the state’s economy. We believe abolishing stamp duty on commercial and industrial property purchases will boost mobility and help businesses’ cashflow position. However, the new regime also could result in significant holding costs for owners of these properties. For investors who are looking to hold properties long term, these added holding costs over an extended period could offset the benefit of the upfront duty saving.

Below is an example to illustrate the cost and benefit of the proposed new regime, in the context of a longer-term investment.

On 1 July 2024 Jim acquires a commercial property for $10m. The duty payable on $10m based on the current rates is $630,000. He elects to pay the duty in instalments over 10 years rather than paying all of it upfront. Over the 10 years, the total duty and interest charges are as follows:

If Jim holds the property for 15 years, under the new regime he will be liable for the additional 1% annual property tax on the property’s unimproved land value in the last five years of his ownership. Assuming the property’s unimproved value (for land tax purposes) is $6m, the additional property tax payable over the five years will be $300,000.

In the above example, under the new regime, the duty (plus accrued interest) and the additional annual property tax will be $1,044,534 in total. Whereas under the current system, only $630,000 of upfront duty is payable.

Accordingly, whilst on the face of it this reform looks promising, it would be prudent to examine the full impact of the new measure taking into account all relevant circumstances, including the intended length of ownership of the property, the amount of duty payable, the amount of annual property tax payable over the relevant length of ownership of the property, the risk of the annual property tax being increased over time (in addition to the risk of the land value increasing each year) and the breakeven point (compared to a scenario where a property acquired prior to 1 July 2024 is only subject to transfer duty).

What does this mean for clients?

Clients who are looking to purchase commercial and industrial properties in the next 12 months should pay close attention to the cost and benefit that the new regime could bring. As the above example illustrates, the new regime may not necessarily be beneficial for certain types of investors or businesses. For clients who are looking to invest in commercial or industrial properties long term, they should consider making that purchase prior to 1 July 2024 to avoid the potential for the additional 1% annual property tax to apply should they hold the property longer than 10 years. For clients who are looking to invest for a shorter term (less than 10 years), the opportunity to defer payment of upfront duty could provide much needed cashflow and capital benefits.

Further issues for consideration

Once the relevant legislation has been introduced into Parliament we should have further clarity on the new regime and how it may impact our clients. However, we have already identified a number of issues for further consideration.

1. The definition of commercial and industrial property

Currently the Duties Act 2000 provides a duty concession for purchases of certain regional commercial and industrial land. Under this concession, only properties that fall within certain code ranges of the Australian Valuation Property Classification Code qualify for the concession. The new regime could adopt a similar approach. However, it will be interesting to see if the government will look at the intention of the purchaser following the purchase of a property as a factor in determining whether the property should be treated as a commercial or industrial property. For example, in relation to a person who acquires commercial property with the intention to rebuild or convert it into residential property, for foreign purchaser additional duty purposes the legislation would treat the property as residential, rather than commercial. Therefore, we query what the position will be with respect to the proposed annual property tax for properties that are currently commercial in nature, but which are intended to be developed as residential property.

Further, we query what the position will be with respect to commercial or industrial property that is brought within the new system and subsequently converts to non-commercial and non-industrial property (for example if it gets converted to residential property) and sold. We presume that the current duty rules will apply and the property will remain outside the new system, but it remains to be seen whether and how the new rules will cater to that situation.

2. Sale of property during the 10 year period following the initial acquisition of property that brings it within the new regime

What happens if a person after making the choice to pay duty in instalments, disposes of that property prior to making all their instalment payment obligations? Do they have to pay all the remaining instalments at the time of disposal of the property? Will there be cessation events that will trigger the remaining instalment payments to be payable all at once, similar to the deferral regime applicable to the new Windfall Gains Tax?

In the above scenario, when will the subsequent purchaser be liable for the 1% annual property tax? Will they be entitled to the remainder of the initial 10-year period from the initial purchaser’s acquisition of the property? Or would the subsequent purchaser be immediately liable for the new tax following the change in ownership?

3. Landholder acquisitions

In circumstances where, rather than making a direct purchase of property, a person instead acquires shares or units in the entity that holds the property that results in a landholder acquisition, it is uncertain whether the new regime will apply at all. Should the new regime be limited to direct acquisitions of commercial or industrial property only, there appears to be an option to stay out of the ambit of the new regime by indirectly acquiring commercial or industrial properties through the acquisition of companies or unit trusts that own such properties.

4. Design and administration features

It is unclear whether the annual property tax will follow the general land tax cycle (with a taxing date of 31 December), or an assessment cycle that is in line with the transaction/acquisition date of the property.

It is also unclear whether the annual property tax will be subject to the tax administration regime under the Taxation Administration Act 1997 , including whether an annual property tax assessment is subject to the 60-day statutory deadline, and the imposition of penalty tax and interest on any tax/notification default.

5. Recovery from commercial and industrial property tenants

Whilst the measure aims to provide some cash flow relief to purchasers of/and investors of commercial and industrial properties, the annual property tax liabilities may ultimately find their way to the bottom line of small and medium business owners.

Business insurance duty to be abolished

The Treasurer has also announced in the Budget that business insurance duty will be progressively abolished. Specifically, insurance duty on public and product liability, professional indemnity, employers’ liability, fire and industrial special risks, and marine and aviation insurance will be reduced by 1% per year until it is completely abolished by 2033.

The Government states that this measure is to support the growth of the Victorian economy. While we welcome this announcement and believe that it is long overdue, if the currently proposed timeframe of gradual abolition could be halved to a five year period it would further accelerate the economic benefits that the measure brings.

What are the next steps?

If you believe this will affect you and/or your business reach out to your Pitcher Partners expert to discuss the impact today.

Click here to return to the Victorian Budget 2023-24

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Victoria shows Australia how to finally abolish stamp duty once and for all

Program Director, Economic Policy, Grattan Institute

Disclosure statement

Brendan Coates does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

View all partners

Major state tax reforms are few and far between in Australia, which is what makes Tuesday‘s Victorian budget very, very significant.

Victoria’s government announced it will abolish stamp duty for commercial and industrial properties and replace it with an annual property tax .

The Victorian model shows how state governments could abolish all property stamp duties once and for all – including stamp duties on homes.

Stamp duty is a bad tax

Originally intended to be abolished as part of the deal to introduce the goods and services tax back in 2000, stamp duty on commercial and industrial properties accounts for about one-fifth of all stamp duty revenues collected in Victoria.

They are one of the most economically harmful taxes Australia has.

Stamp duties on commercial and industrial properties act as a brake on new businesses, stop many businesses from shifting premises as they grow and ultimately mean we don’t use scarce urban land as efficiently as we should.

Read more: Finding the losers (and surprising winners) from phasing out stamp duty

Economists estimate that stamp duties on commercial property cost the economy between 50 cents and 60 cents for every dollar of revenue they raise – more than any other state tax.

So far, only South Australia has fully phased out stamp duty on commercial properties, although it never replaced it with a land tax.

The Australian Capital Territory is well on the way to abolishing them as part of its broader property tax reforms, which will see stamp duty replaced with a broad-based land tax for all types of property over two decades.

The ACT is just over half-way through that transition.

Victoria’s bold moves

From July 2024, buyers of commercial and industrial properties will have the option of paying stamp duty upfront or the same amount (with interest) stretched out over a decade.

A decade after that purchase, the property will attract an annual land tax of 1% of the property’s unimproved land value.

If the new owners sell again, even within the first decade, no stamp duty will be charged and the same deadline for the introduction of the land tax will apply.

Land tax won’t be charged on properties bought before July 2024 until they are sold. After they have switched to land tax, they can’t switch back.

How quickly things transition will depend on how quickly these properties turn over, and it might take decades.

But once the transition is complete, the budget predicts a long-term payoff to the state economy of as much as $50 billion over some decades.

Abolishing homebuyer stamp duty is the big prize

Abolishing stamp duty on commercial properties is a big step forward. But the main game remains abolishing stamp duties on homes, which raise four times as much for state governments.

Economists hate stamp duties on homes because they discourage homeowners from moving house as their lives change. Doing so would mean having to pay stamp duty a second time.

It’s also unfair because it punishes younger households that move around more, while rewarding older residents who tend to stay put for decades.

Read more: Victoria bites $117 billion bullet, begins the long march of land tax reform

Stamp duty even acts as a tax on divorce. It’s a big reason why more than half of divorced women who lose their home don’t buy again. Divorced women are already three times more likely to rent in retirement than married women.

Removing stamp duty would lead to better use of the existing housing stock: first homebuyers could buy smaller homes knowing they could more easily upgrade later, and more retirees would downsize. Past NSW Treasury calculations suggest this could result in rents and house prices falling by up to 6% in the long term.

In 2018, the Grattan Institute found a national shift from stamp duties to land tax would add up to $17 billion per year to gross domestic product.

Victoria’s approach could inspire others

Broader stamp duty reform has stalled. Despite the obvious benefits, only one Australian government, the ACT, has made the move from stamp duties to a broad-based property tax.

Adopting the ACT model – by gradually phasing down stamp duty while lifting land tax – would ensure Victoria could transition without losing revenue.

But it would impose land tax on those who haven’t moved homes, which would make the politics harder.

The former NSW Perrottet government tried to give homebuyers a choice between paying stamp duty and land tax as a way around forcing existing home buyers to start paying land tax, but the reform fell flat once the true cost to the state budget became apparent.

Read more: Axing stamp duty is a great idea, but NSW is doing it wrong

Victoria’s model provides an alternative for weaning homes off stamp duty. No one would be forced to pay land tax until they moved, which would make the politics much easier. But it would take longer to reap the economic benefits than the ACT’s approach.

It would still cost the budget money as the government would collect less in land tax than it would from the stamp duty during the transition. But the budgetary cost would be much less than adopting the failed NSW model, especially if the federal government committed to filling part of the (smaller) revenue hole.

Ditching stamp duty for land tax for all properties could be a game-changer across Australia. The ACT showed us one path. Victoria is opening up another.

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