Revenue Note for Guidance
Section 31 Certain contracts to be chargeable as conveyances on sale
Summary
This section provides that certain contracts are not chargeable to stamp duty.
Details
(1) (a) Contracts for the sale of an equitable estate or interest in property (e.g. a contract to sell a life interest in property, an option to purchase a legal interest in property, an agreement in writing to execute a declaration of trust of property in favour of a purchaser), and
(b) contracts for the sale of property other than—
- land, tenements, hereditaments, or heritages,
- property locally situated outside the State,
- goods, wares or merchandise (electricity is deemed to be “goods, wares or merchandise” under section 95 of the Electricity (Supply) Act, 1927 – see Appendix 2),
- stock or marketable securities,
- a ship, vessel or aircraft or any part interest, etc., in a ship, vessel or aircraft,
are chargeable as if they were conveyances on sale. The purchaser is liable to pay the duty.
The types of contracts which are liable under (b) are contracts for the sale of what can in general terms be described as “intangible” property e.g.
- benefit of contracts,
- goodwill,
- book debts,
- cash on deposit, and
- fixtures attaching to leasehold property i.e. tenant’s fixtures.
In addition, contracts for the sale of bearer shares1 are chargeable under this section.
Section 101 provides for an exemption from stamp duty for intellectual property which is defined in the section and includes patents, trademarks, copyright and related rights, registered designs, inventions and domain names.
Where a contract for the sale of property (e.g. the sale of a sole trader’s business) comprises both chargeable and non-chargeable property the consideration must be apportioned as only the chargeable property is liable to duty under this section.
Example
A agrees to sell his newsagency business to B. The assets and liabilities of the business are as follows:
Assets |
Liabilities |
||
€ |
€ |
||
Leasehold premises |
40,000 |
Trade creditors |
7,000 |
Goodwill |
5,000 |
Mortgage |
20,000 |
Stock |
5,000 |
||
Plant and Machinery |
10,000 |
||
Tenant’s Fixtures |
4,000 |
||
Book Debts |
3,000 |
||
Bank Current a/c |
4,000 |
||
Bank Deposit a/c |
6,000 |
||
77,000 |
Total |
27,000 |
⇒ Net Value = €50,000.
B agrees to pay A €77,000 consisting of a cash consideration of €50,000 and the assumption of A’s business liabilities. A written agreement is entered into. That agreement is chargeable as a conveyance on sale of the goodwill, tenant’s fixtures, book debts and deposit a/c. In practice, the current a/c is not regarded as being within the scope of section 31. The chargeable consideration is €18,000. As the property is non-residential (see head of charge in Schedule 1) the rate of duty applicable is 2%.
A also assigns the leasehold premises to B. The chargeable consideration for the assignment is €40,000. Again the rate of duty applicable is 2% (see head of charge in Schedule 1).
All the other property - stock and the plant and machinery - passes by delivery.
It is often the case that an existing business is sold to a company in return for the issue of shares in that company. Section 58(2) of the Companies Act, 1963, provides that where shares are allotted by a limited company incorporated in the State for a consideration other than cash a duly stamped contract relating to the property contracted to be transferred to the acquiring company, or, if such a contract has not been reduced to writing, particulars of such contract duly stamped as if it were such a contract, must be filed with the Registrar of Companies.
(2) Where the purchaser has paid ad valorem duty on the contract but, before s/he has taken a conveyance, s/he enters into a contract (second contract) to sell on his or her interest then the second contract will be chargeable to ad valorem duty only on the excess consideration.
(3) Where duty has been paid on the contract referred to in subsection (1) or (2) and a conveyance is subsequently taken that conveyance is not chargeable with duty. The Revenue Commissioners may be requested to—
- denote the duty paid in respect of the contract on the conveyance (see section 11), or
- transfer the duty to the conveyance.
The Revenue Commissioners will refund any duty paid on the contract if the contract is later rescinded, annulled or not substantially performed or carried into effect so as to operate as or be followed by a conveyance or transfer. While this section does not specify a time limit for submitting claims for refund, a 4 year time limit is provided for by section 159A from the date the contract is stamped, in respect of a valid claim for refund. Interest may arise on the refund – see section 159B.
1 This section (i.e. section 31) refers to share warrants issued in accordance with section 88 of the Companies Act, 1963. Section 88 provides that a “company limited by shares if so authorised by its articles, may, in relation to any fully paid up shares, issue under its common seal a warrant stating that the bearer of the warrant is entitled to the shares therein specified, and may provide by coupons or otherwise for the payment of the future dividends on the shares included in the warrant”. Share warrants entitle the bearer of the warrant to the shares specified in the warrant. Shares may be transferred by delivery of the warrant. It is the view of the Revenue Commissioners that share warrants may not be issued by private companies because they would be subject to restrictions relating to when they may be delivered. By definition a share warrant should not be subject to any restrictions on delivery.
Relevant Date: Finance Act 2014