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Piers Dereham
Senior Associate | Legal
Guernsey
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Piers Dereham
Senior Associate
Guernsey
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Updated 12/03/19
On 15 November 2017, The Document Duty (Guernsey) Law 2017 came into force. This new law remedies certain deficiencies in the previous legislation and is designed to achieve greater clarity and simplicity for buyers and sellers.
The new law affects the island of Guernsey only, not any of the other islands in the Bailiwick.
Document duty will continue to be collected in Alderney under the old legislation. Congé will also continue to be payable in Alderney.
Document duty is payable on "chargeable transactions".
A "chargeable transaction" is:
It is worth noting the following points:
The document recording a chargeable transaction cannot be registered at the Greffe unless document duty is paid or unless the transaction is an exempt transaction.
The person liable to pay the document duty is the person wishing to register the document – normally the purchaser or the person taking the benefit of the charge. (This will not prevent the usual practice of a lender requiring its borrower to reimburse document duty and other costs.)
Various transactions are exempt transactions, comprising:
of the other party or of the other party's spouse, civil partner or cohabitant.
Even conveyances for full market value between the classes of relation above will be exempt from duty.
Interestingly, this type of transaction is not exempt under The Document Duty (Anti-Avoidance) (Guernsey) Law, 2017 and so the question arises whether duty would be payable under that law.
Interestingly, a conveyance from a natural person to a company wholly owned by him or her is not exempt.
The parties to a chargeable transaction must make certain declarations to HM Greffier. They must full and frank disclosure of all facts which may be material.
There are criminal penalties for making false declarations and for withholding material information.
The declarations required are as follows:
Guidance received from HM Greffier is that it will suffice to state in the conveyance that section 5(4) of the law applies but if there are other facts that need to be brought to HM Greffier's attention these should be disclosed on the prescribed form produced by HM Greffier. Examples would be where there is a connection between vendor and purchaser, or if the consideration is less than might be expected
Guidance from HM Greffier is that in obvious cases the conveyance can contain a simple declaration that the transaction is an exempt transaction under the relevant section of the law. In less obvious cases, the prescribed form will need to be used
The law sets out no timescale for the submission of these declarations, nor does it require any of these declarations to be made in advance of the transaction itself.
However, bearing in mind the powers of HM Greffier to request further information and to serve a notice stating his opinion of what duty should be payable, any failure to satisfy him on the correct of duty payable will result in registration of the transaction being delayed. It is therefore prudent in non-straightforward cases to submit declarations well in advance of the intended date of the transaction.
The amount of document duty is calculated as follows:
The percentage figure charged is set out in The Document Duty (Rates) Ordinance 2017 and are (for the time being) the same as the rate chargeable under the old law.
The rates are:
In relation to bonds the rate is now 0.0% of the amount secured.
If HM Greffier believes that the amount of the consideration is inadequate, the transaction can be treated as it is not at arm's length with the result that duty will calculated on the market value of the real property.
Document duty is payable on the consideration or market value of real property.
On the sales of many properties, certain contents are included in the sale. Where these contents comprise personal property, no document duty is payable on the price agreed for them.
The basic test of whether an item comprises real property or personal property is whether it can be moved from one place to another.
Examples of contents which would normally be considered as personal property include:
On the other hand, the following items would normally be regarded as real property
It is important that the parties to a transaction satisfy themselves that the valuation agreed for any personal property is a reasonable valuation, as HM Greffier has the power to request information and can impose a higher amount of document duty where he believes that the effect of transaction is to reduce the amount of duty payable (see below). So, where HM Greffier believes that the apportionment of a sale price to personal property is excessive, he can adjust the amount of document duty to a more appropriate level.
Interestingly, the standard form declaration produced by HM Greffier does not request information about the value of personal property included in the sale. However, bearing in mind the parties' duty to make full and frank disclosure of all facts which may be material and to demonstrate utmost good faith in their dealings with HM Greffier, it would be wise to disclose an excessive or unusual apportionment in the declaration.
In certain cases, it may be necessary to obtain a professional valuation of personal property to minimise the chances of any challenge to the agreed price after completion of the sale.
Up to now, a "permitted deduction" of 5% of the sale price has been regarded as acceptable. However, guidance has been issued by HM Procureur that a "basic default deduction" of 2.5% of the total consideration should operate for transactions completed after 1st January 2018. If the parties wish to apportion greater value to personal property, they should apply to HM Greffier with supporting documentation. In many cases, a professional valuation might be required but this is not clear from the guidance.
Even where the parties rely on the basic default deduction of 2.5%, they should still take care to satisfy themselves that this figure represents a reasonable value for the contents. In some cases (eg the sale of a dilapidated property or sale of a completely stripped out property), the parties should apportion a lower value to contents. If in any doubt, prior clearance be sought from HM Greffier.
HM Greffier can require the parties to a transaction to provide further information and documents.
If HM Greffier believes that information contained declarations submitted to him is not accurate, he can serve a notice on the parties. The notice will set out the amount of duty which he believes is property payable and the information and assumptions on which the duty has been assessed.
In these circumstances, the parties have the choice of simply paying the duty set out in HM Greffier's notice or appealing to the Royal Court. There is a 28 day period in which to appeal. To do this, document duty (at the amount which HM Greffier believes is payable) must be lodged at the Greffe and notice of appeal must be served.
When hearing an appeal, if the Royal Court believes that the amount of duty lodged at the Greffe is too low, it can require a higher amount to be lodged.
HM Greffier can adjust the amount of document duty payable in cases where the effect of a transaction (or series of transactions) is the avoidance, reduction or deferral of a person's liability to document duty. The adjustment would be one which HM Greffier considers appropriate to counteract the avoidance, reduction or deferral of liability.
It is worth noting that:
On the same date as The Document Duty (Guernsey) Law 2017 came into force, its sister law, The Document Duty (Anti-Avoidance) (Guernsey) Law 2017 also came into force.
A detailed explanation of that law is beyond the scope of this article. However a few points are worth noting about it.
The Document Duty (Anti-Avoidance) (Guernsey) Law, 2017 (the "Anti-Avoidance Law") introduces a new regime parallel to document duty regime explained above.
The Anti-Avoidance Law imposes a duty on transactions which have a similar effect to the transfer of an interest in real property but which do not involve a conveyance or other registrable document.
The general principle of the Law is that the duty is payable on "relevant transactions". These are transactions:
The main example of a transaction covered by the Anti-Avoidance Law is the sale of shares in a company which owns Guernsey real property.
The Anti-Avoidance Law, however, does contain a number of exceptions to that general principle as well as providing for exemptions in certain defined circumstances.
Interestingly, the Anti-Avoidance Law appears to cover transactions which are stated to be exempt under The Document Duty (Guernsey) Law, 2017, but which are not exempt under the Anti-Avoidance Law. Examples of this would be:
Document duty is payable at the rates set out in The Document Duty (Anti-Avoidance) (Rates) Ordinance, 2017, and those rates are the same as the ones set out above under The Document Duty (Guernsey) Law, 2017.
Duty is assessed on the market value of the interest transferred. There is no provision for duty to be assessed on the consideration paid.
The parties to the transaction are jointly and severally liable to pay the duty. This means that care needs to be taken when preparing the transaction documents to make it clear which party (normally the purchaser) should actually pay the duty.
All parties are responsible for submitting a self-assessment form to H M Greffier. H M Greffier will administer the scheme but has the ability to refer cases to the Director of Income Tax. The Director of Income Tax is responsible for enforcement and has powers to make formal assessments and impose penalties in cases where the requirements have not been fulfilled.
Piers Dereham
Senior Associate | Legal
Guernsey
Piers Dereham
Senior Associate
Guernsey
Martyn Baudains
Partner | Legal
Guernsey
Martyn Baudains
Partner
Guernsey
Ogier is a professional services firm with the knowledge and expertise to handle the most demanding and complex transactions and provide expert, efficient and cost-effective services to all our clients. We regularly win awards for the quality of our client service, our work and our people.
This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.
Regulatory information can be found under Legal Notice
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