Members of the Law Society of Scotland's tax committee have called on the Scottish government to request an urgent, retrospective amendment to the legislation. This follows the issuing by Scottish tax authority Revenue Scotland of a formal opinion confirming that LBTT group relief is not available on a transfer from parent to subsidiary where there is a share pledge over the shares in the subsidiary.
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 or leased.
"It is common for companies to grant a share pledge to their bank as part of a typical security package to support normal commercial borrowings, and if this now prevents companies from being able to claim group relief on property transfers in Scotland it could be detrimental to companies which are proposing to invest in Scotland," said property tax expert Alan Cook of Pinsent Masons, the law firm behind Out-Law.com.
"Corporate transactional structures often involve transfers in relation to which group relief would be expected to be available, and if this is not the case it could significantly increase transactional costs in Scotland and inhibit investment and corporate activity. It is to be hoped that the Scottish Government will recognise that this is a problem which requires to be fixed as a priority," he said.
LBTT came into force in Scotland on 1 April 2015 as a replacement for the UK's stamp duty land tax (SDLT). It is charged on a progressive basis which is similar to the existing income tax system, under which slices of the transaction price are subject to LBTT at increasing percentages. LBTT is administered by Revenue Scotland.
The group relief provisions for LBTT are for the most part similar to those applicable to SDLT, allowing companies in the same group to claim relief from LBTT on most intra-group land transactions. However, the Scottish 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.
Revenue Scotland's formal opinions are not currently published on its website. However, the tax authority is expected to issue technical guidance on the point shortly, Cook said.