David Gibson: First Scots tax for 300 years on the way

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IT IS looking certain the Land and Buildings Transaction Tax Bill (LBTT) will be enacted, introducing the first purely Scottish tax in more than 300 years (from 1 April 2015).

Is it a trailblazer for things to come? A chance to administer tax more efficiently and generally do it better, as the Scottish Government suggests. Or more needless bureaucracy and increased transaction costs for a property industry already on its knees?

The Scotland Act 2012 fully devolves to the Scottish Parliament control over the new LBTT and landfill tax. Income tax will be partially devolved from 2015/2016. It is not surprising LBTT (stamp duty for the online age) is the first as it is relatively certain of collection (though not always simple), essentially relying on Scottish solicitors dealing with property transactions for its administration.

The bigger picture is that the Block Grant from the UK Government will be reduced to take account of the revenue that would have been raised from Stamp Duty Land Tax SDLT and landfill tax in Scotland. The Scottish Property Federation, for example, has suggested that the forecasts for SDLT on which the discussion might be based are wildly optimistic.

So what does it mean for practitioners and their clients?

LBTT rates will not be known until September 2014 at the earliest. That leaves uncertainty. Above all else, businesses hate uncertainty. However, the key elements of LBTT are already clear.

The most striking difference is that, rather than the current SDLT “slab” approach, it will be a progressive tax. In other words, LBTT will apply at the relevant rates up to each threshold and only at the (higher) rates above those thresholds. That is welcome.

While the rates are not yet known, there will be a 0 per cent rate and at least two higher rates. The most politically trumpeted aim is to take lower value properties out of tax, to encourage “first time buyers”. An indicative threshold of £180,000 is mentioned.

That is fine, but it is also anticipated that overall the tax is going to bring in more than at present. That means higher rates for higher value properties. What is good for the property industry surely is activity and that is what boosts tax revenues (as well as the many jobs reliant on the industry), not higher rates in themselves. Increased transaction costs tend to have unwelcome unintended consequences.

The new Revenue Scotland will manage devolved taxes. Registers of Scotland will collect LBTT. Much work remains to be done and many fear the tight deadlines and suspiciously low-sounding budgets. That said, as collection relies on solicitors dealing with property transactions and given the widespread consultation, it is almost certain all issues will be cleared.

Much is made of the intention to tighten up tax avoidance opportunities. Simplification is always welcome. It is a truism that if a tax is simple and fair in the first place there is less incentive for avoidance measures. It tends to be the squeezed (majority) middle that takes the brunt.

Reliefs and exemptions will be tidied up in what generally seem sensible ways. Some, such as sub-sale relief, are more controversial and consultations will continue.

Leases are a complex area and are still under consideration. It is clear licences to occupy would no longer be exempt. Notwithstanding that, licences are frequently used in legitimate circumstances, for example, by retailers in short-term concessions and the change is unlikely to be welcome and may cause confusion.

John Swinney acknowledges this is all still work in progress. There continues to be an opportunity for consultation and to help craft something fit for purpose and better aligned with Scottish practice. Most practitioners would get behind that aim, albeit with a healthy scepticism that this is going to add transaction costs and make Scotland a less rather than more attractive destination for their clients. The reverse, of course, is at least possible.

• David Gibson is a partner at bto Solicitors