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"Historic" Scottish replacement for stamp duty land tax unveiled


The Scottish Government has published more details of its proposed replacement for stamp duty land tax (SDLT), which is due to come into force from April 2015.

The Land and Buildings Transaction Tax (Scotland) Bill has been described as a "historic first" for the Scottish Government, as it is the first that uses powers set out in the Scotland Act 2012 to enable the Scottish Parliament to both set and collect a proportion of its own revenue.

From 2015 the new land and buildings transaction tax (LBTT) will apply when land or buildings are purchased or leased. The Scottish Government has proposed a progressive tax structure, similar to the current income tax system, where slices of the transaction price will be taxed at increasing percentages. SDLT currently operates a 'slab' system of taxation, where the amount of the consideration determines a single rate of tax which is applied to the whole amount.

"In this bill we are setting out an innovative approach to taxation that is much better aligned with Scots law and practices, and the principle of progressive taxation," Finance Minister John Swinney said. "Rather than the current distortive 'slab' approach which sees people pay too much tax and distorts the market, we will ensure that taxpayers pay an amount more proportionate to the value of their property."

Property law expert Alan Cook of Pinsent Masons, the law firm behind Out-Law.com, said that the Bill clarified the Scottish Government's position in a number of areas. However, areas including the rules on partnerships and the basis of the taxation of leases would likely be the subject of further stakeholder consultation, he said.

"I suspect the proposed progressive taxation approach will generally be welcomed as it will iron out anomalies in the current system, such as the current 'bunching' of prices just below each SDLT rate threshold," he said. "However, there are concerns that commercial investors could be put off transacting in Scotland due to the top rate of LBTT being superficially higher than the equivalent SDLT rate. The rates themselves will not be known for another couple of years, but pitching them at the right levels will be critical to maintaining Scotland's position as a place where property investors want to do business – something which is of fundamental importance to the continued development of the Scottish economy."

However, the omission of subsale relief from the operation of LBTT would be of "very significant concern" to the property industry, he said. This relief prevents a double SDLT charge when someone contracts to buy property and then sells the property on before they have acquired it from the original seller, so that the property is transferred directly from the original seller to the new purchaser.

"Subsales are a common aspect of property investment and development activity, a point which has recently been recognised by the UK Government in its current consultation into the operation of the subsale rules under SDLT," Cook said. "Indeed, when the Bill to introduce SDLT was first published it did not allow for subsales, and it was only after intense lobbying by the property industry that the UK Government accepted that it was appropriate to include it in the legislation. It is to be hoped that the Scottish Government will listen to the comments which they will certainly receive on this point, as the omission of subsale relief will not encourage the property development and investment which Scotland so badly needs just now."

Another "unexpected" aspect of the LBTT legislation was a proposed charge on the transfer of shares in residential property holding companies, he said. The detail of this proposed charge is yet to be worked out, he said, with draft provisions set to be presented to Parliament as the Bill made its way through the legislative process.

"The Scottish Government wants to capture the transfer of the economic interest in residential land or buildings in the same way as any other equivalent transaction," he said. "It is surprising that it considers this to be a significant issue in Scotland, and there will be concerns that these measures could inhibit the development of a professional residential property investment industry in Scotland."

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