Call for overhaul as Scottish farmers hit by 'unfair' property taxes

Farmers are being hit by "unfair" property taxes which add to the pressure on their businesses, a rural law specialist has said.

Tim Macdonald, a senior associate in the rural services team at Edinburgh-based legal firm Lindsays, called for an overhaul of the existing rules.

He said a report on land reform and taxation by the Scottish Land Commission, published earlier this year, was a "significant missed opportunity".

Farmers are being hit by “unfair” property tax charges, it has been claimed

Mr Macdonald also raised concerns that farming families were being unfairly hit by the Additional Dwelling Supplement (ADS) – sometimes referred to as the second home surcharge.

Land and Buildings Transaction Tax (LBTT) is charged on purchases and on leases, with the buyer or tenant paying the tax.

Ordinary residential leases are exempt, but Mr Macdonald said there was no relief for agricultural leases, which may include residential property.

He said: “If the Scottish Government wants to put its devolved powers to maximum use as regards LBTT, it could exempt agricultural leases from the tax.

"The loss to the Treasury would be small, but the benefit to tenant farmers would be great, as they would no longer suffer the costs of complying with the three-yearly review regime for reporting what are usually modest amounts of tax.

“Indeed, most of these leases are never going to pay more in tax than the tenant’s professional fees for submitting the returns every three years.

“At the very least, there should be relief for the residential component of a tenant farm’s rent. The absence of this is unfair.”

ADS sees an extra 4 per cent charge added to LBTT when anyone buys additional dwellings, such as holiday homes or buy-to-lets.

Mr Macdonald said tenant farmers who buy the farm they have rented for years face paying more where the deal includes not only the main farmhouse, but another cottage or cottages. The same applies if only one house is bought with the farm, but the buyer owns another home somewhere else.

Mr Macdonald said there should be an exemption from ADS "for all dwellings which will be occupied for agricultural purposes".

A Scottish Government spokesperson said there were no plans to amend arrangements “at this time”.

The spokesperson said: “The Land and Buildings Transaction Tax legislation applying to leases was informed by consultation and then consideration by an expert working group and takes account of the range of circumstances in which such transactions may occur.”