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Out-Law News 2 min. read

Scottish government consults on LBTT group relief fix


Plans to address an anomaly in the land and building transaction tax (LBTT) legislation restricting access to group relief have been published for consultation by the Scottish government.

The proposed amendment will allow group relief to apply during a taxable land transaction between one company and another company in the same corporate group, by way of a share pledge or equivalent arrangement. This "reflects the original policy intention that LBTT group relief arrangements should operate in a similar way to stamp duty land tax (SDLT)", as well as ensuring that Scotland remains "an attractive place to invest or do business", the government said.

The "abbreviated" consultation will close on 13 April 2018, reflecting the Scottish government's intention to introduce legislation at "the earliest sensible opportunity" as well as widespread awareness about the issue among affected property owners, lenders and tax professionals.

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 last summer, Scottish tax authority Revenue Scotland confirmed that such transactions in Scotland were chargeable to LBTT, despite not being chargeable to SDLT in England by virtue of the exclusion.

The Scottish government's intention is to make the change by way of secondary legislation, which rules out the possibility of it having retrospective effect. As part of the consultation, it intends to "explore whether retrospective primary legislation would be a possible option". It has also asked consultation respondents for any other information that they can provide to ensure that its change "fully addresses the issue, allowing for group relief to be claimed in the relevant circumstances once it is in effect".

Property expert Alan Cook of Pinsent Masons, the law firm behind Out-Law.com, said that the fix should be introduced retrospectively.

"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," he said. "As the change needed is an entirely technical one, there is no reason why it should not be retrospective."

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