Land and buildings transaction tax - property investment funds: consultation

Chapter 4: LBTT Treatment of Co-owned Authorised Schemes

47. As CoACS are a contractual scheme between persons, and not companies in their own right, the exchange of units in these schemes is subject to a LBTT charge due to the underlying Scottish property they are based on. As illustrated in Figure 2, the current position under LBTT legislation is that a tax liability is due every time units are exchanged.

Figure 2: CoACS - Current tax points under LBTT

48. In its paper SDLT Rules for Property Investment Funds( ^[5] ), the UK Government stated that the way in which SDLT was applied to certain collective investment schemes was perceived by the industry as presenting barriers to their effective use as property funds. At Budget 2014, the UK Government therefore announced that it would consult on the way property authorised investment funds ( PAIFs) and co-ownership authorised contractual schemes ( CoACSs) are treated for SDLT purposes.

49. Following this, changes to the tax treatment of units held in CoACS were made to SDLT through the Finance Act 2016. Trading in these units has now become “non-transparent” for UK SDLT tax purposes – meaning acquisitions into the scheme are taxed but trading in the units of the scheme are not.

50. As discussed in Chapter 2, CoACSs were introduced into legislation in 2013 and since then a number of schemes have been launched. These schemes are ‘tax transparent’, so that income (the tax liability) accrues to investors directly as it arises. They are now however non transparent for SDLT purposes. Assets in a CoACS are legally held by a depositary on behalf of the unit holders or investors, who are the beneficial owners of the assets.

51. Section 102A of the Finance Act 2003, as introduced by the Finance Act 2016, provides a relief from SDLT when rights in a co-ownership authorised contractual scheme are transferred among participants in the scheme. This is delivered by treating the participants as shareholders in a company rather than as owners directly of the underlying real assets of the scheme, the rights in which would otherwise attract SDLT.

Figure 3: CoACS - Current tax points under SDLT

52. Figure 3 shows the current position under SDLT. It is important to note that properties that are purchased by a CoACS are subject to SDLT as normal. Trading in units however (that have an underlying value based on the land and property assets) would not be subject to the tax. If the scheme sells a property and it leaves the scheme, then the new owners of the property are also subject to SDLT.

53. To deliver the same position in Scotland would require changes to the Act through secondary legislation (subject to affirmative procedure) determining that unit holders of a CoACS should also be treated as shareholders in a company.

Question 7: Do you agree that the Scottish Government should introduce parity with SDLT by providing a relief for the exchange of CoACS units?

Question 8: Please briefly describe any positive and negative impacts that would accompany such a relief.

Question 9: With regards to a CoACS relief - how would a ‘do nothing’ approach on the part of the Scottish Government affect your business and future business decisions?

Question 10: Do you have any other comments not covered by the previous questions around providing a relief for the exchange of CoACS Units?