The Chartered Institute of Taxation (CIOT) has welcomed Scottish Government plans to consider the introduction of a new relief from Land and Buildings Transaction Tax (LBTT) for investors such as pension funds and insurance companies that invest in Scottish property.
The CIOT said the move to introduce ‘seeding relief’ would bring Scottish legislation into line with the rest of the UK and help encourage investment by fund managers in Scottish-based property as a result of the equalisation of tax treatment across the UK.
However, the Institute also cautioned Scottish Ministers against the blind repetition of current UK rules, citing ongoing issues between government and industry over the mechanism used to recover (‘claw back’) taxes owed in cases where funds are no longer eligible for tax relief.
Seeding relief – if introduced – would exempt certain types of funds, known as Property Authorised Investment Funds (PAIFs) and Co-Ownership Authorised Contractual Schemes (CoACS) from LBTT in transactions involving the transfer of properties from existing portfolios or into new ones.
These funds are investment vehicles used by institutional investors to make it easier to encourage collective investment in property.
Commenting, Moira Kelly, chair of the CIOT Scottish Technical Committee said:
“By choosing to consider the introduction of reliefs similar to those already in force elsewhere in the UK, the Scottish Government is adopting a common sense approach that will streamline and improve the efficiency of the LBTT regime. This will provide greater simplicity and certainty for taxpayers.
“Mirroring the regime in the rest of the UK will also make it more likely that property investors will consider including Scottish properties in their portfolios. With different – and more commercially advantageous rules available elsewhere in the UK – investment managers are currently wary of investing in Scotland for fear of the additional tax charges their clients will face.
“But as we have seen with issues relating to ‘claw back’, there are certain aspects of this regime that are seen as unfit for purpose. In these circumstances, it will be important to consider whether a change in approach, either in line with the rest of the UK or more reflective of Scottish circumstances, will strike a balance between good tax policy and the need for simplicity, efficiency and ease of compliance.
“Nevertheless, introducing this relief in Scotland is a pragmatic move and one likely to incentivise the attractiveness of Scottish property as part of wider investment portfolios”.
The Scottish Government's consultation closes today (2 August).