A recent technical bulletin issued by Scottish tax authority Revenue Scotland (4-page / 391KB PDF) confirms the existence of the anomaly, which was first identified last year. The bulletin confirms that the equivalent stamp duty land tax legislation (SDLT) legislation in England contains a specific provision allowing for the use of the relief where companies that own property grant security over that property, but does not indicate that the Scottish Government will take action to address the problem.
Property law expert Alan Cook of Pinsent Masons, the law firm behind Out-Law.com, said that it was "frustrating" that there had been "no real evidence that the Scottish government is treating the matter with the degree of urgency that the professional and business community consider it needs".
"Dealing with this issue will require a change to the LBTT legislation, and that requires action by the Scottish government," he said.
"While this issue remains unresolved, it is yet another thing inhibiting normal commercial activity in Scotland and does not create a good impression of Scotland as being a 'good place to do business'. The hope remains that the Scottish government will soon propose the changes to the legislation which are needed to deal with this anomaly," he said.
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.
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, it 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.
The exclusion is particularly relevant where, as is often the case, companies grant a share pledge to their bank as part of a security package to support their commercial borrowing. In a formal opinion issued over the summer, Revenue Scotland confirmed that such transactions in Scotland would be chargeable to LBTT, despite not being chargeable to SDLT in England by virtue of the exclusion.
Revenue Scotland does not currently publish its opinions on its website, but the tax authority used its latest technical bulletin to set out its understanding of the operation of the law.
"[P]aragraph 3 of schedule 10 [of the LBTT legislation] restricts the availability of group relief where, at the effective date of the transaction, there are arrangements in place which mean that a person has or could obtain control of the buyer but not of the seller," it said in the bulletin.
"The view of Revenue Scotland is that the pledging of the shares constitutes an 'arrangement' under which a person (i.e. the lender holding the share pledge) could obtain control of the subsidiary but not the parent. Therefore, paragraph 3 of schedule 10 is engaged, which means that group relief is not available in this instance. As a result, LBTT is payable on the market value of the property transferred," it said.
The technical bulletin also confirms Revenue Scotland's position on other LBTT related matters. The tax authority has now accepted that 'in specie' transfers between pension funds do not in themselves attract LBTT, as is already the case for SDLT. It has also confirmed that, if a lease is terminated early, the tenant can apply to Revenue Scotland for repayment of the LBTT which had previously been paid in respect of the period after it terminated.