LBTT group relief 'fix' will not have retrospective effect

The draft Land and Buildings Transaction Tax (Group Relief Modification) (Scotland) Order is due to come into force on 30 June 2018. It confirms that, from this date, the existence of a share pledge or equivalent arrangement will not prevent group relief from applying during a taxable land transaction between on company and another in the same corporate group, provided that the right to call in the arrangement is not exercised.

Pinsent Masons, the law firm behind Out-Law.com, responded to a short Scottish government consultation on the issue. As part of that response, the firm stressed the need for the fix to have retrospective effect in order to reflect the government's intention that LBTT group relief arrangements should operate in a similar way to stamp duty land tax (SDLT) in England.

"The change is intended to fix a problem that no-one was even aware of for a couple of years, with group relief being claimed in the meantime when it turns out that it was not available," property law expert Alan Cook said previously. "As the change needed is an entirely technical one, there is no reason why it should not be retrospective."

The Scottish government has made a number of small amendments to the draft order published for consultation in March to reflect industry feedback. These include widening the provisions to cover all possible types of relevant security provision arranged anywhere in the world, and replacing some of the terms used with the equivalent Scots law terminology.

"While the current statutory instrument isn’t able to fix the issue retrospectively, the property industry has continued to lobby the Scottish government to also introduce primary legislation to give the fix retrospective effect," said Cook.

Group relief is the relief from LBTT which should usually apply when land or buildings in Scotland are transferred between companies in the same corporate group. These transfers would otherwise be chargeable to LBTT, which applies whenever land or buildings in Scotland are sold and leased.

The group relief provisions for LBTT are, for the most part, similar to those applicable to SDLT, which LBTT replaced in Scotland on 1 April 2015. The Scottish legislation allows companies in the same group to claim relief from LBTT on most intra-group transactions. However, the current legislation does not include the same specific exclusion of unexercised security rights from the 'disqualifying arrangements' which prevent group relief being available that was introduced to the SDLT legislation in spring 2013.

This exclusion is most commonly relied upon when companies grant a share pledge to their bank as part of a security package to support their commercial borrowing. The existence of the anomaly in the LBTT legislation emerged last summer, after Scottish tax authority Revenue Scotland confirmed that these transactions were chargeable to LBTT in Scotland despite not being chargeable to SDLT in England.