SS.240-245 of the Finance Act 1994 contains measures to counter avoidance of stamp duty on land transactions.

This legislation has proved to be some of the most difficult and controversial stamp duty legislation in modern times.

Guidance on the Revenue's views is contained in the August 1995 issue of the Revenue's publication Tax Bulletin (reproduced in the 11th edition of Sergeant and Sims on Stamp Duties).

The Tax Bulletin article should always be referred to before giving advice on the 1994 legislation.

However, the article does not answer every question and is controversial in parts.EXCHANGESS.241 imposes a double charge on exchanges.

This can be by reference to the value of the more expensive of the properties.

However, the Revenue has confirmed that where it is clear from the contract that the lower value property has been transferred for the higher value property less the equality money, the charge on the lower value property is limited to the value of that property.

It has also confirmed earlier advice that it is possible to structure certain exchanges so that only a single charge arises.

If the transaction is a part exchange and it is structured as a sale of the more expensive property for a cash sum to be satisfied in part by the transfer of the other property, rather than as an 'exchange', s.241 does not apply.

Duty is then payable on the sale price of the property 'sold'.

The transfer of the property by the purchaser in satisfaction of part of the purchase price is liable only to a fixed 50 pence duty.The Tax Bulletin article does not deal expressly with the exchange of two properties of equal value.

The Revenue's position is that if land is sold for a price which is to be wholly satisfied by the transfer of other land, s.241 does apply, with the result that there is a double charge even though the contract is drafted as a sale.

The Revenue also says that s.241 applies where the cash element in the transaction is nominal.

In support of its view, the Revenue points to decisions by the High Court in Simpson v Connolly ((1953) 2 All ER 474) and by the Court of Appeal in Connell Estate Agents v Begej [1993] The Times, 19 March.The Law Society's stamp duty sub-committee made it clear to the Revenue that it was unsatisfactory that legislation which was introduced to rationalise the treatment of exchanges should have such capricious results.

LEASESThe Tax Bulletin article sheds some light on the new provisions dealing with leases.

It confirms that agreements for leases do not normally need to be stamped, or submitted to the stamp office, before the lease is executed.

It also confirms that a double charge can arise on a surrender and regrant, but provided the new and old lease relate to substantially the same property the value of the old lease is disregarded in assessing the duty on the new lease.

Duty on the new lease would, in these circumstances, be confined to the rent and any new premium (s.77(5) of the Stamp Act 1891).The Revenue also confirms that, in normal circumstances, s.241 will not apply to a sale and leaseback transaction.

But, if the contract provides for the transfer of a freehold in consideration of the leaseback of that property plus the payment of a cash sum, it is understood that the Revenue would say that there would be sale duty on the transfer of the property (based on the value, if any, of the lease plus the cash).

Duty on the lease would be based on a proportion of the value of the freehold.

The Revenue is also thought to take the line that s.241 applies to a lease even where the consideration for the lease is expressed as a cash sum to be satisfied wholly or in part by the transfer of property to the lessor; their treatment in the case of the grant of a lease is not consistent with their treatment of a Tsale'.UNASCERTAINABLE CONSIDERATIONWhere the consideration or rent is wholly or in part 'unascertainable', s.242 provides for duty to be levied by reference to the open market value of the property or the open market rent.

The previous practice under which certain split term leases were treated as two separate leases has been discontinued.

In the case of a lease, the market value rule applies where the whole or part of the rent is unascertainable.

Where this is the case, the Revenue will assess duty on the market rent.

Where the rent under a lease is ascertainable for part of the term and unascertainable for the balance, the Revenue says it will take the market rent for the whole term in order to calculate the average annual rent (Bulletin, para 21).The new market value rule gives rise to practical difficulties.

It would have been helpful if the Tax Bulletin article had given a number of examples but the Revenue felt that the result in any particular case will depend on the precise terms of the lease and that generalisation is difficult.

Where the rent under a lease is unascertainable for only part of the term P for example, rent fixed for five years after which there is to be a rent review under which the rent could go down as well as up P the Tax Bulletin article says (para 21) that the market rent is taken for the whole term.

This may represent a change from the practice adopted in some stamp offices.

Where the rent is fixed for an initial term after which it is subject to an upwards-only rent review, the stamp duty sub-committee believes that s.242 would not apply, as a contingent rent would be ascertainable for the whole term of the lease.

S.242(3)(a) disapplies s.242 in these circumstances.

Duty would be payable under normal stamp duty principles on the basis that the rent for the fixed term continued through the term of the lease.Where there are two elements to the rent P a basic rent plus an additional element which is not capable of determination at the time the lease is granted, for example a basic rent plus a turnover-related rent, there is an argument that the section does not apply on the basis that there is a prima facie sum payable through the term of the lease.

The Revenue does not accept this argument and will claim duty on the basis that s.242 does apply because there are two distinct parts to the consideration and one part is unascertainable.

ESCAPE CLAUSE Subs (3)(a) disapplies the section if the rent can be determined by application of the so-called contingency principle.

The ascertained rent may be a maximum, minimum or a variable basic rent (para 20).

But the Revenue says that a minimum figure inserted in a lease 'to avoid s.242' or 'which did not represent the agreed consideration or rent' would not satisfy the test.

To qualify as a contingent minimum rent, the Revenue says that the rent must be an amount genuinely agreed between the parties.

The stamp duty sub-committee has told the Revenue that it is not aware of any good authority for the proposition that a minimum rent inserted into a lease does not represent the agreed consideration for the purposes of s.242(3)(a).

Peter Bone Ltd v CIR [1995] STC 921 contains an indication of the unwillingness of the courts to go behind a document to ascertain its true legal effect.

The anomaly with which the stamp office is obviously concerned is an anomaly which is inherent in the contingency principle itself.

Under that principle, stamp duty is payable on the maximum ascertainable consideration, even if the prospects of it being paid are remote.

However, stamp duty is also payable on the minimum consideration (where there is no maximum).

It would, therefore, be inequitable to treat s.243(3)(a) as applying where the contingency principle would produce an anomalously high charge to duty, but denying that treatment where it would produce an anomalously low charge.The sub-committee would like to hear from solicitors how the stamp duty office is applying the legislation.TAX BULLETIN ARTICLE-- There can be a double charge.-- Careful drafting of contracts can result in a single charge.-- There will be a double charge where properties of equal value are exchanged or there is only minimal consideration.Leases-- Double charge can arise on a surrender and regrant.-- There will only be a single charge if new and old lease relate to same property.-- S.241 of the FA 1994 normally will not apply to sale and lease-back transactions.Unascertainable consideration-- If consideration is wholly or in part unascertainable, duty is levied on open market value or rent.-- The Revenue's practice of treating split-term leases as two leases is discontinued.