Proposed Scottish Land and Buildings Transaction Tax

Introduction

As a result of the Scotland Act 2012 the Scottish Parliament has the power to set certain devolved taxes, one of which is a new Land and Buildings Transaction Tax (LBTT) for Scotland which it is proposed will be in place from April 2015 and will replace the current system of UK Stamp Duty Land Tax (SDLT). A consultation paper in relation to this (Taking forward a ScottishLand and Buildings Transaction Tax) was issued by the Scottish Government in June 2012 and is open for comment until 30 August 2012, the information below references proposals outlined in the consultation paper.

The Scottish Government's general proposal is to "introduce a Land and Buildings Transaction Tax which would improve on SDLT in a number of areas including simplifying the payment system, better aligning the legislation with Scots law and practices, and ensuring appropriate reliefs and exemptions are applied".

Key proposals

As with SDLT, the proposal is that LBTT will apply where land or property in Scotland (both residential and commercial) is purchased or leased (for a long period). It will also apply where rights to land or property are acquired through other means (such as option to buy), subject to certain exemptions and reliefs.

It is proposed that the majority of the exemptions and reliefs currently in place under SDLT will continue to apply under LBTT and new or amended exemptions or reliefs may be introduced (such as building on the current zero carbon homes relief). Certain reliefs, such as right to buy relief and shared ownership relief, which are not generally used in Scotland, will no longer be available. There are also proposed amendments to Compulsory Purchase Order (CPO) relief so that it applies to all CPOs where the local authority transfers land to a third party (and not just those which facilitate 'development').

The main proposed deviation from SDLT relates to the structure of the tax. Currently SDLT operates as a 'slab' tax whereby the whole price is taxed at the same rate (not just the proportion of the price over a certain threshold).

It is proposed that LBTT could operate a progressive tax (similar to UK Income Tax) whereby no tax is paid on the proportion of the price below a certain threshold, the proportion of the price between a first and second threshold is charged at a first rate and so on through various thresholds to the top rate. It is suggested that this would be a fairer system and would also stop buyers from being discouraged from purchasing property just over a certain threshold and also allocating a disproportionate proportion of the price to moveables, thus distorting the market.

Conclusion

If LBTT is operated as a progressive tax then it should increase flexibility to price land and property to reflect their true value rather than forcing pricing around land tax thresholds. The actual tax rates and thresholds will obviously be key in evaluating how the proposals will impact on investment in land and property in Scotland. The Scottish Government has advised that these will not be set until the tax is introduced in 2015 in order to reflect the economic climate at that time.

For further information please contact Paul Greenhill.