Minister's 'directions' on stamp duty can be challenged

Sunday 26 November 2023

Directions issued by the Treasury Minister to mitigate the effect of stamp duty increases for some second home buyers can be challenged legally, the Royal Court has ruled.

Commissioner Matthew Thompson said there was a realistic argument that Treasury Minister Ian Gorst had "erred" in the directions he issued following complaints that the stamp duty rises in last year's budget were unfair.

But the Commissioner refused leave to appeal the decision itself to increase the duty by 3% implemented through primary legislation passed by the States of Jersey which he ruled could not be challenged by judicial review.

"The only basis upon which the Courts may review principal legislation passed by the States of Jersey is if that principal legislation is incompatible with an applicant’s rights under the European Convention on Human Rights," Commissioner Matthew Thompson said

The Commissioner was sitting alone to decide whether Lewis Buckley, owner of flats at the new Horizon development on the Waterfront, could obtain a judicial review of parts of the Finance (Budget 2023) (Jersey) Law 2023 and a direction issued by the Minister following criticism of those provisions.

Mr Buckley had paid a deposit and entered into a contract for the purchase of two flats – providing significant damages for non-completion of the purchase – to find that the stamp duty he owed had risen from £4,200 to £13,500. The increased "gross value" value of the flats – on which the calculation was based – was subject to the new rate at the point the sale was due to be completed.

In an email to Housing Minister David Warr following the budget change, Mr Buckley wrote: "The position which arises is not only arbitrary in terms of what constitutes 'gross value' by virtue of the inconsistency and uncertainty in valuation for the Horizon development at least, but which leaves many purchasers in a position where, at short notice, they are now forced to find significant and unanticipated funds to meet the stamp duty increase. This may result in purchasers defaulting in breach of contract of their terms of purchase... The results are likely to be disastrous,"

While the government was entitled to adjust the tax regime, the increased stamp duty announced with short notice affecting a "hugely delayed" project "beggared belief", he argued.

The Treasury Minister subsequently introduced a direction modifying the impact of the changes, so that the value on which the duty was calculated was the contract price rather than the market value at the time of completion. He also offered the flexibility to impose the standard, rather than second home, rate of duty for some purchases involving family members.

"This...aims to offer the potential of a reduction in the higher rate of stamp duty...when the acquisition has as its aim the protection of the individual who shall be living in the property. This...is not intended to apply in normal situations when a family member purchases a property for another family member, or when the property is purchased as an investment,” the Direction stated.

While the Royal Court rejected arguments advanced for Mr Buckley by Advocate Harriet Brown that the provisions of the law could be challenged, it found that the Minister's direction could be reviewed.

Commissioner Thompson said: "I note that the Direction in one sense was favourable to the applicant and others in a similar situation because a discretion was exercised to charge stamp duty on the basis of the contract price paid for off-plan sales, rather than the current market value of the property. Despite this benefit, the criticism of the applicant that the Direction did not go far enough, in my judgment meets the required threshold.

"This is because it is a realistic argument that the [Minister] erred by limiting the concession to those who could establish need. It is not therefore clear to what extent the [Minister] considered extending the concession to property purchases made for family members with rights to reside in Jersey because they could not afford to acquire property themselves... A person acquiring a property for a child to rent on a subsidised basis or to occupy rent free could be the provision of a home for someone who could not otherwise afford the same. At present there is no evidence suggesting to what extent this issue was considered", he said.