Out-Law / Your Daily Need-To-Know

Out-Law News 2 min. read

New Scottish property and landfill taxes come into force, but 'concerns remain', says expert


The introduction of the first new taxes raised by a Scottish parliament in more than 300 years is a "significant moment", although some concerns remain about the impact that they will have on Scottish businesses, an expert has said.

Alan Cook of Pinsent Masons, the law firm behind Out-Law.com, welcomed the introduction of the new Land and Buildings Transaction Tax (LBTT), which he said marked "the culmination of some three years of discussion and hard work". New Scottish tax authority Revenue Scotland is now accepting online returns for LBTT, which has replaced the UK-wide stamp duty land tax (SDLT).

"This is a significant moment for the Scottish Parliament and its new and developing tax powers," Cook said.

"However, there remain concerns on a number of fronts – for example, how higher rates of residential LBTT compared to SDLT will affect the market for family homes over £350,000 in the larger cities; how higher rates for commercial property transactions over approximately £2 million will affect property investors' views of Scotland as a place in which to invest their funds; whether the restricted availability of subsale relief will have a distortive effect on the market compared to the rest of the UK; and how occupiers will respond to the new compliance burden on them to submit updated returns for leases which are granted after 1 April 2015," he said.

"We shall be keeping a close eye out for market impacts as part of our ongoing role in guiding businesses through the new regime," he said.

From today, Revenue Scotland will collect and administer LBTT and a new Scottish landfill tax, which replaces the UK-wide landfill tax in Scotland. The 'block grant' that Scotland receives from Westminster has been reduced by a corresponding amount to reflect the Scottish Government's new tax raising powers. The Scottish Parliament has also legislated for a tough new general anti-avoidance rule (GAAR) which will apply to the devolved taxes. This is stronger than the UK GAAR, which only targets 'abusive' arrangements.

LBTT will be charged whenever buildings in Scotland are sold or leased. It will be charged on a progressive basis which is similar to the current income tax system, under which slices of the transaction price will be subject to LBTT at increasing percentages. The UK government introduced progressive SDLT rates for residential property in December 2014, replacing the previous 'slab' system under which the amount of the consideration determined a single rate of tax which was applied to the whole amount.

Under LBTT, no tax will be charged on the first £145,000 of a residential property transaction, compared to the first £125,000 of a property transaction under SDLT. LBTT will be charged at 2% on the portion of the price between £145,001 and £250,000; at 5% on the portion of the price between £250,001 and £325,000; and at 12% on the portion of the price over £750,001. Under SDLT, the top 12% rate only applies to the portion of the price over £1.5m.

For commercial property the rates are zero for the first £150,000 of a purchase price, 3% for the portion of the price between £150,000 and £350,000 and 4.5% above £350,000.

The new landfill tax will be charged at £2.60 per tonne for certain categories of material such as naturally occurring rocks and soils, ceramic or concrete materials and ash and £82.60 per tonne for other taxable waste.

The Scottish Government has said that the two new taxes will be 'revenue neutral', generating the same amount of tax as their predecessor UK taxes would have generated over the same period. However, they have been designed to "redistribute the burden of taxation". The Scottish Government has claimed that the new rates mean no tax will be payable on 50% of Scottish house purchases, and that more than 40,000 homebuyers will pay less tax than they would under UK SDLT.

We are processing your request. \n Thank you for your patience. An error occurred. This could be due to inactivity on the page - please try again.