Scots will be freed from stamp duty next year

Picture: Jane Barlow
Picture: Jane Barlow
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New tax on property transactions a simpler plan, says Elaine Piggot

THE Scottish independence referendum continues to dominate the media agenda. Many questions have been posed, and conflicting answers offered. While the debate roars on, one thing is certain: this time next year, Scotland will have a degree of independence in relation to property transaction tax.

At the moment, Stamp Duty Land Tax (SDLT) is payable on property transactions in the UK where the value of the transaction exceeds certain thresholds. Under the umbrella of “property transactions” are leases, purchases, options to purchase and the acquisition of other rights over land.

Under the Scotland Act 2012, Stamp Duty Land Tax will cease to apply in Scotland on 31 March, 2015, to be replaced by Land and Buildings Transaction Tax (LBTT), which will be the first Scottish tax coming into effect on 1 April, 2015. Although the main LBTT legislation hit the Scottish statute books last year in the form of the Land and Buildings Transaction Tax (Scotland) Act 2013, this merely sets out the framework. The underlying mechanics – and most importantly, the rates – are still to be announced. The new tax will apply regardless of where the parties to the transaction are based, provided that the land or property concerned is in Scotland.

In establishing the new tax regime, the Scottish Government has been innovative in its approach. HM Revenue and Customs will have no role to play in the collection of LBTT. A new body, Revenue Scotland, has been set up to take responsibility for the administration of Scotland’s devolved taxes, but the day-to-day administration of LBTT will be through Registers of Scotland, an existing body which is responsible for compiling and maintaining registers relating to property and other legal documents. This sounds like a minor change, but for those of us embroiled in the day-to-day world of property transactions, the concept of dealing with the same body for registration and the payment of LBTT is appealing.

So what does the change mean? Whilst much of the LBTT legislation follows the lead of SDLT, there are a few key differences, beyond the rates payable. The main one is that LBTT will be a progressive tax like income tax, rather than a slab tax like SDLT, where the whole of the price is taxed at the same rate.

Like the rates, the number of rate bands are as yet unknown, but having a progressive tax will certainly mean that, particularly in the residential market, the price offered will be less significantly influenced by LBTT, as the implication of moving from one tax rate band to the next will not in itself mean a dramatic increase in tax.

A further significant difference is the requirement for more frequent submission of returns by tenants under leases. Although this will add an additional administrative burden, it will more closely align the tax due to the rent actually payable under the lease. Sub-sale relief has been omitted in its entirety from the LBTT regime and, as the legislation stands at present, no such relief will be available. Whilst this is a clear message that efforts are being made to minimise LBTT avoidance schemes as a consequence of the significant issues encountered under the SDLT regime, it does leave open concerns for developers in forward funding transactions. To date, the Scottish Government appears to be willing to consider introducing targeted relief.

Consultation is ongoing on the subordinate legislation which will bring the Act into force and deal with matters which were not addressed in the original legislation, such as sub-sale relief and administrative matters. There seems to be a real drive amongst those involved to make LBTT a fairer, more transparent and simpler tax than its predecessor.

In the meantime, though, the biggest question surrounds LBTT rates and the lack of a timescale for confirmation of those rates. While a sensible approach seems to have prevailed in the legislation itself, and in the consultation process for the subordinate legislation, there is real concern that LBTT rates on commercial properties could result in significantly higher LBTT being payable in comparison to an equivalent land transaction under the SLDT regime. This could make Scotland a less attractive place to do business whether or not Scotland votes for independence on 18 September.

• Elaine Piggot is an associate in Tods Murray’s real estate team


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