Stamp duties are estimated to contribute around £7.2 billion (or some 5%) to net Inland Revenue receipts in the current financial year.

This is more than the combined total of inheritance tax and capital gains tax.

It is more important than ever properly to understand the potential impact of stamp duty on transactions (or, rather, instruments).Among five anti-avoidance measures in this year's Finance Act are ss 119 and 120.

The arrangements targeted by s.119 are transfers of land to a company with which the transferor is connected in consideration of the issue by the company of shares the value of which is significantly less than the land.

This could be arranged through a sale to a company with a large number of issued shares (of whatever denomination), but having only a few new shares issued in consideration of the transfer of the land, such that the stampable value was effectively watered down dramatically.

Before 28 March 2000, the stampable consideration was the value of the issued shares.

Now, however, s.119 ensures that it is the value of the land which is stamped.The particular arrangement targeted, with a view to mitigating stamp duty, was a sale of the land.

Unfortunately, s.119 also catches gifts.

Admittedly, it was clear from the Budget Day press release that this was the case, though there was (legitimate) expectation that the Finance Bill would be amended so as to exclude gifts from the scope of the n ew rule.

Although some exclusions from the rule were then enacted as s.120, these did not exclude gifts.The new rule applies where a person transfers an estate or interest in land to a company, and:The transferor is connected with the company, or;Some or all of the consideration for the transfer is the issue or transfer of shares in a company with which the transferor is connected (i.e., it does not have to be the transferee company).The definition of connection is found in s.831 of the Income and Corporation Taxes Act 1988, under which a person who has 51% voting control of the company is connected with that company.The exceptions to the scope of s.119 provided by s.120 (for instruments executed after 28 July 2000) may be summarised as follows:--- Where the transfer is to or from a nominee or bare trustee for the company;-- Transfers out of a settlement exempt under Category F;-- Where the company carries on a business which consists of or includes the management of trusts and is to hold the land as trustee in the course of that business;-- Where the company is to hold the land as a trustee and is connected with the individual only through s.839(3) Income and Corporation Taxes Act 1988, and;-- Where the transfer is made by a company by way of a distribution of assets either as a dividend or in connection with its winding up (given that the transferor company acquired the land by virtue of an instrument duly stamped).The most important of these examples is the last.

A distribution in a winding up can be certified category I under the Exempt Instruments Regulations 1987.

Payment of a dividend can be certified category L as a gift.

The only trap here is that a company wanting to distribute assets in specie should not first declare a cash dividend, because there will then be conveyance or transfer on sale duty under s.57 of the Stamp Act 1891, as being a transfer in satisfaction of the debt constituted by declaration of the dividend.

The resolution should therefore provide for a dividend for a fixed amount which is to be satisfied by the transfer of particular property.The new rule under s.119 applies to instruments executed on or after 28 March this year, unless pursuant to a contract made on or before 21 March (except where (a) the instrument is made in exercise after 21 March of any option, right of pre-emption or similar right or (b) the instrument transfers the property to someone other than the purchaser under the contract because of an assignment or further contract after that date).It is always possible to certify the transfer under para 6 sch 13 to the Finance Act 1999, typically where the consideration does not exceed £60,000.

Certification can be made subsequent to execution of the document, provided that the certificate is endorsed on the document itself and not on a separate piece of paper (see Stamp Office Manual paras 4.9 to 4.14).

Indeed, except in a case where the consideration exceeds £500,000 attracting the maximum rate of duty, a certificate must be endorsed to ensure a liability of less than 4%.Caught therefore will be:-- A gift of land which is a business asset to a company such that the gain can be held over by election under s.165 of the Taxation of Chargeable Gains Act 1992;-- A transfer of land to a company by way of gift which falls outside the strict ambit of the exclusions in s.120;-- Traditional inheritance tax planning for a non-UK domiciliary who owns a valuable property in the UK.

Typically the individual would either give or sell for shares the property to a company in corporated outside the UK, so that what he owns ceases to be the UK situs property and becomes the non-UK situs shares (which are excluded property by s.6(1) of the Inheritance Tax Act 1984).How to advise clientsEven with the sale of the whole of a business to a company in consideration of the issue of shares such as to attract the protection of s.162 of the Taxation of Chargeable Gains Act 1992, it used to be possible to avoid ad valorem stamp duty by transferring the business to an unlimited company which was subsequently registered as limited.

This will no longer be effective in the light of s.119.

Perhaps the land could be left outside the company and leased or licensed to the company: while s.162 relief would no longer be available, it should be possible to hold over any gains under s.165.

However, this will not solve the inheritance tax problem for the non-UK domiciliary.Advisers might consider whether it is possible to achieve the inheritance tax benefit without transferring the land to the company, by merely contracting to sell the vendor's legal and beneficial interest in the property.

No stamp duty is payable on the contract and stamp duty is payable only at such time (if ever) the contract is completed, at (under the current law) rates applicable at the date of the contract.

It is essential to avoid the trap in Peter Bone Limited v IRC [1995] STC 921, a case where a company did not acquire both the legal and equitable interests of the vendor partnership (because it was envisaged that the property would be sub-sold) and ad valorem duty was held to be chargeable on the contract under what is now para 7(1) sch 13 to the Finance Act 1999.

While there are interesting questions as to the scope of this decision, clearly, however, the contract should at least contain some mechanism by which the contract can be completed.The adventurous will try and secure an inheritance tax saving of 40% (on both present value and future growth) while avoiding any stamp duty, assuming that excluded property status can effectively be achieved for the value of the property, leaving little if any value in the hands of the individual transferor.

The cautious may choose to pay the 4% stamp duty to be certain of the inheritance tax benefit.Consider whether a series of transfers can be made by way of gift, such that the £60,000 certificate of value can be applied to each (on the grounds that there is no obligation to make a further gift).

General anti-avoidance principles should be borne in mind here, however.s.119 is a clear example of an anti-avoidance provision going far beyond the specific mischief which it was intended to convert.

Advisers need to beware of this.