As the saying goes, you wait for a bus and then three come along at once. Same too, it seems, with the changes in our legislative landscape likely to occur in 2017.
After a period of relative calm, the year signals great adjustments including a new Document Duty regime, the likely coming into force of the Access to Neighbouring Land Law, the likely tightening of tax upon share transfers involving property, the new Population Management regime and, whilst not a legislative change, the practical operation of the newly adopted Island Development Plan.
We at Ferbrache & Farrell thought it might be helpful to set out a brief summary of each of these key changes, and how they might affect us all. Please do not hesitate to contact us to discuss any of the aspects in more detail, since each topic could easily warrant an article in its own right.
Document Duty Regime
The 2016 Document Duty Ordinance will come into effect on 1 January 2017. Up until then, we are familiar with the three document duty bands, with most purchasers of Guernsey properties paying a flat 3% upon the value of realty.
Going forward, that taxation will change with document duty being paid on a sliding scale, not dissimilar to English income tax. So, on the first £250,000 of a property’s realty value, £5,000 will be paid in tax. On the next £149,999 of a property’s realty value, £4,875 will be paid in tax, and so on through a range of tax brackets with realty value above £1,000,0001 being levied at the rate of 4%. With a simple algorithm it is relatively straightforward to calculate the likely tax, and in some instances the new regime is more favourable than at present.
Where the complexity will really arise will be the treatment of properties that are being exchanged, since in this instance the method of calculation requires a number of factors to be taken into consideration.
Access to Neighbouring Land
Guernsey property law is a treasure in the Island’s Customary Law crown. It is a fine example of how custom and practice, that has roots centuries old, is still highly effective and adaptable today. That said, from time to time, legislative clarity and support is needed, particularly in times of regulatory burdens (particularly upon lenders). Access is one such instance.
The historic starting position is that unless a right was specifically set out in title, then it did not exist (with limited exceptions). As our society assumes the principle of “bon voisinage” or good neighbourliness, then the absence of a right to (say) access a neighbour’s property for repair was not generally a problem. However, that reliance on a neighbour’s good faith has created an uncertainty, which in a lender’s eyes creates an unwanted commercial risk.
After many years of deliberation, and research into the treatment of the issue by other jurisdictions, a legislative solution is about to become a reality. At its simplest, should a neighbour not co-operate with a reasonable access request, the aggrieved party may make an application to the Magistrates’ Court for a Court Order permitting access with conditions. That ultimate recourse can be considered as a deterrent to non-neighbourly (or non-reasonable) conduct.
The new law is also clear upon the treatment of existing services which may not have any rights in title (or else unsatisfactory rights in title) and in which case a solution is offered up.
It is hoped that the new law will ease the conveyancing process, and will introduce a level of comfort to all interested parties when the quality of historic legal title may have had gaps, or perhaps been unclear.
Acquiring the Share Capital of Property Holding Companies
At the moment, document duty does not need to be paid if someone acquires the share capital of a Guernsey registered company which holds, for example, land and buildings as an asset. Also, the transaction itself is not a public affair, since it does not need to be concluded before Jurats (as a conveyance would be). The whole process is very private.
In consequence, the quantity and value of such transactions is difficult to analyse with any real level of accuracy. It is safe to say, however, that the type of property involved is generally high in value, and therefore the cumulative lost revenue to the Island is also high from document duty not being paid.
This has been identified at a political Budget level some years ago, and a closing of the ‘loophole’ has been inevitable. It is very likely that in 2017 formal anti-avoidance measures will be put in place. The practical consequences of such changes will mean that any benefit in acquiring a property holding company will be diminished, and an equivalent level of document duty is likely to need to be paid as if the transaction had proceeded by way of traditional conveyance.
That being said, for some there will always remain a certain attractiveness of owning property through a corporate structure. Regardless of the tax position, the usual searches and due diligence will still need to be carried out upon a company (and the property title) before acquisition to ensure all is in good order.
It will be interesting to see the extent of any increase in document duty receipts that can be attributed to the previously ‘hidden’ transactions, and indeed how such additional monies will be used.
Population Management Regime
Arguably one of the biggest changes of all in 2017 will arise in the guise of population management. It is understood that the new law will come into force in April.
Historically, population has been controlled through the medium of housing stock, and which had its legislative roots in post WW2 Guernsey, and latterly in 1994. Since then, society, and particularly human rights considerations have changed considerably and which has warranted an overhaul of the system.
Going forwards, the Island’s population will be ‘managed’ (rather than ‘controlled’) through the individual, as distinct from through the availability of housing stock. At its simplest, every inhabitant will be required to have a permit or certificate (depending upon how they are residing here). As one might expect, there are various different categories of each permit and each certificate.
Although the current Housing Law will no longer be needed, the familiar two-tier housing system will still remain, and there will be around 27,000 houses classified as Local Market, with in the region of 1,600 houses classified as Open Market. It is important to briefly point out that there will be a restructuring of the Open Market, although the four Parts A-D will still be used. Owners of Part A properties (being Private Family Homes) will continue as now to make up most of the Open Market.
After over 20 years’ exposure to one regime (and arguably much longer), the transition to a widely understood new system may take some time. Doubtless there will be many nuances which will require a deeper analysis, and potentially legal argument.
Island Development Plan
The Island Development Plan, or IDP, has been the product of years of work, including consultations, reports, public meetings, Planning Inspector analysis and finally political debate. The IDP was formally approved in November 2016, and replaces the ageing Rural Area Plan and Urban Area Plan which were only intended to be in operation for a limited period in any case.
A ‘single’ plan is not unusual and is adopted by many planning authorities, including Jersey. That Jersey has taken the same ‘single plan’ approach is not of itself important, but it is indicative that such a planning structure can work in an Island community.
Unlike the previous Urban Area Plan and Rural Area Plan, the IDP is deliberately drafted to incorporate a degree of flexibility. So, in the event that a particular planning proposal does not sit neatly into a particular policy, then there is the potential for the Planning and Development Authority to determine it on its own merits.
At a more granular level, some of the policies that have generated more vociferous debate have centred around the private development sector being required to provide an element of social housing, the treatment of redundant glasshouses and development around local centres.
We at Ferbrache & Farrell are particularly interested to see how the planning officers at Sir Charles Frossard House will interpret the new IDP, and following that thread, whether the Planning Appeal Panel will agree with the methodology.
In conclusion, therefore, it is likely to be a very busy 2017, and we very much look forward to the opportunities that the changes will present.