Wednesday, November 14, 2007

Separate deals saving stamp duties

En bloc sale or 53 separate contracts entered into by individual owners of the apartments to sell? That was the $286,000 question that emerged in the High Court in what can be described as a test case for property developers to get savings on stamp duty.

United Overseas Land subsidiary UOL Development Novena (UOLD) claimed that its purchase of 53 properties at Minbu Road for $61 million was not an en bloc sale but 53 separate contracts which it entered into with the individual owners.

At stake was $286,200 in stamp duty savings if it was found to have bought the 53 properties separately.

This is because under the Stamp Duties Act, stamp duty is charged at one per cent on the first $180,000 of purchase price, two per cent on the next $180,000 and three per cent on the balance of the purchase price that exceeds $360,000.

The way this works out is that stamp duty can be calculated simply by taking three per cent of the purchase price minus $5,400 - that being the sum of one per cent on $180,000 and two per cent on the next $180,000.

So if there was only one contract arising from an en bloc sale, the $5,400 could only be subtracted once.

But if there were 53 contracts, then $5,400 can be subtracted 53 times, resulting in savings of $286,200 for the property developer.

However, the High Court ruled last month that UOLD bought the 53 properties in an en bloc sale.

The court said that the owners of the Minbu properties intended to sell their properties on the basis of an en bloc sale.

The invitation to tender issued by the owners said that they ‘collectively’ invite offers to buy their property on an ‘en bloc’ basis.

The court also found that there is no evidence that UOLD’s offer to buy the Minbu properties for $61 million was made on the basis that separate contracts were to be entered for each property.

And even though the owners sent 53 separate letters of acceptances to UOLD according to the developer’s request, the court found that the owners did not ‘give any thought’ to converting the en bloc sale to 53 separate contracts.

Justice Tan Lee Meng said that the case raises an interesting question as to how stamp duty is assessed on properties bought through en bloc sales.

However, he found that the plan for 53 separate contracts was mooted ‘for the sole purpose of lessening the stamp duty payable on the en bloc sale’.

BT understands from UOLD’s lawyers that the developer has not filed an appeal yet. It has until tomorrow to do so.

UOLD was represented by Tan Kay Kheng and Teo Lay Khoon from WongPartnership.

Source : Business Times - 14 Nov 2007

No comments: