Press release: Businesses will welcome Scottish Government clarity on LBTT exemptions

The Scottish Government has confirmed that it will introduce legislation clarifying that a tax exemption for businesses transferring ownership of property within a group of companies using shares as financial security has been available since the introduction of Land and Buildings Transaction Tax (LBTT) in 2015.

The Scottish Government has confirmed that it will introduce legislation clarifying that a tax exemption for businesses transferring ownership of property within a group of companies using shares as financial security has been available since the introduction of Land and Buildings Transaction Tax (LBTT) in 2015.

The Chartered Institute of Taxation (CIOT) welcomed the announcement by finance secretary Derek Mackay at today’s meeting of the Finance and Constitution Committee.

Mr Mackay confirmed to the committee that the Scottish Government will bring forward legislation giving retrospective effect to the Land and Buildings Transaction Tax (Group Relief Modification) (Scotland) Order 2018, in line within its original policy intention.

There had been concerns that this exemption had been left out of Land and Buildings Transaction Tax (LBTT) legislation after Revenue Scotland said in an official opinion last year that its wording had failed to give effect to the Scottish Government’s official policy position.

The Scottish Government has already introduced secondary legislation to confirm the position moving forward but had been urged by the CIOT and others to introduce a bill that would apply the position retrospectively.

Such transactions are a normal and common part of commercial dealing. Most companies with bank lending facilities will have a share pledge in place, while strong anti-avoidance measures are contained in LBTT legislation to protect against tax avoidance and evasion.

Businesses operating in Scotland had been under the impression that the relief would continue when the LBTT replaced UK stamp duty land tax (SDLT) in 2015.

However, the Revenue Scotland ruling appeared to cast doubt on the practice, leading to a number of high value transactions being postponed or restructured pending clarification.

Under these proposals, it should be put beyond doubt that businesses who have transferred ownership of property within a group of companies where share pledges in the company had been given to a lender as means of security were entitled to the tax relief on these transactions, in line with the Scottish Government’s originally stated policy.

Group Relief for transactions involving share pledges has existed under UK SDLT legislation and has also been carried forward into the recently devolved Welsh Land Transaction Tax.

The CIOT – which has been seeking a solution to the issue for almost a year – said the situation underscored the need for a more quick-fire means of addressing anomalies in the devolved tax system.

It reiterated its calls for the introduction of an annual Scottish Finance Bill, a move that is gaining cross-party support within the Scottish Parliament.

Commenting on the announcement, Moira Kelly, chair of the CIOT’s Scottish Technical Committee, said:

“This is a welcome step from Derek Mackay, one that will address the uncertainty and confusion that has existed for more than a year now among Scotland’s business community on the availability of group relief where share pledges are used as security in transactions.

“The problem has stemmed from the fact that the LBTT legislation, as passed by Parliament, was incompatible with the Scottish Government’s original policy intent that group relief should continue to be available in such circumstances.

“There is always a risk with any major legislative change that anomalies such as this will appear as a new tax regime beds in. However, businesses would have expected a swifter response from government to a situation that our members tell us has resulted in a number of high value property transactions being either postponed or restructured until this clarification was provided.

“The CIOT – along with other bodies – have been vocal in our calls for the introduction of an annual Scottish Finance Bill as a more efficient means of tidying up tax legislation to ensure that it remains fit for purpose. We hope that the emerging consensus within Holyrood for such a move will result in its introduction”.


Notes for editors

  1. In August 2017, Revenue Scotland issued a formal opinion confirming that group relief was not available in the circumstances outlined above. It confirmed this position in Revenue Scotland LBTT Technical Bulletin 3 (28 December 2017).
  2. A copy of the CIOT's response to the Scottish Government's consultation on amendments to LBTT Group Relief can be found here.
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