Land and Buildings Transaction Tax: consultation on an amendment to group relief

Chapter 1: The Rationale For Change

9. LBTT legislation differs from SDLT in a number of areas, better aligning the legislation with Scots law and practices and ensuring appropriate reliefs and exemptions are applied in the Scottish context. Scottish Ministers have made clear they wish to take all reasonable steps to reduce the risk of avoidance of the devolved taxes, to foster a climate of tax compliance and help safeguard public finances. To minimise opportunities for avoidance, the Scottish approach also seeks to ensure that tax reliefs and exemptions are introduced only where they are supported by a strong evidence base.

10. When the Scottish Parliament considered and scrutinised the LBTT (Scotland) Bill, the Scottish Government’s policy intention was that group relief would operate in a similar way to the relief for SDLT. This was to ensure that there is no competitive advantage or disadvantage created between Scotland and the rest of the UK, in this respect, and to ensure that Scotland remains an important and attractive place for companies to locate and invest in.

11. In the lead up to and following publication of Revenue Scotland’s technical bulletin, stakeholders representing organisations with an interest in Scottish property assets have raised concerns about an inconsistency between SDLT and LBTT in terms of the treatment of share pledges and highlighted the potential negative ramifications for companies considering the case for investing in Scotland.

12. In particular, they have set out that share Pledges are a standard feature of banking arrangements within Scotland, routinely required by lenders, and that it would not be appropriate for tax legislation to “break” such standard practices. Stakeholders have also noted that the UK Government has accepted this and put relevant provisions in place across UK taxes (including Stamp Duty, Income Tax, Corporation Tax and Capital Gains Tax (SI 2013/234 art 7 wef 1 March 2013)).

13. Specifically for SDLT, legislative changes introduced in 2013 extended the availability of group relief to transactions between a parent company and a subsidiary, where the parent company has granted security to a lender over shares in the subsidiary. Prior to this, the Scottish Government understands that HMRC had been operating an extra statutory concession (ESC) to allow for this, meaning that the relief would have been available in Scotland prior to the introduction of LBTT.

14. Having given this matter detailed consideration; the Scottish Government’s intention is to address these concerns through legislative change. This recognises the original policy intention that LBTT group relief arrangements should operate in a similar way to SDLT and reflects the Scottish Government’s commitment to ensure Scotland remains an attractive place to invest and do business. In addition, we are clear that making this change will not affect the stringent anti-avoidance provisions in place to discourage abuse of the relief.

15. The proposed change will make clear that land transactions can occur between corporate group members without incurring a charge to LBTT, regardless of whether a share pledge or analogous arrangement is in place. It will also ensure parity in tax treatment for LBTT with other types of corporate transactions in which there is a change in the legal form, rather than the substance, of ownership for example Acquisitions Relief available under schedule 11 of the Act.