Scotland Acts 2012 and 2016 implementation: annual reports

2. Fully Devolved Taxes

2.1 Costs

£m	2017-2018	2018-2019	2019-2020 (forecast)
Administration	5.5	7.8	6.9
Implementation	0.2	0.0	1.8

2.1.1 The above table reflects Revenue Scotland's costs to administer and implement Land and Buildings Transaction Tax (LBTT), Scottish Landfill Tax (SLfT), Air Departure Tax (ADT) and Aggregates Levy (AL).

2.2 Land and Buildings Transaction Tax

The Scotland Act 2012 provided for devolution of powers to introduce a tax on transactions involving interests in land. Land and Buildings Transaction Tax subsequently replaced UK Stamp Duty Land Tax in Scotland from 1 April 2015. LBTT is a tax applied to residential and commercial land and buildings transactions (including commercial leases) where a chargeable interest is acquired.

Key Developments

• Introduction from 7 February 2020 of a new 2% tax band for LBTT non-residential leases.
• Amendment of Section 161 of the Revenue Scotland and Tax Powers Act 2014 to provide that a daily penalty related to LBTT returns can be charged by Revenue Scotland through a single Penalty Assessment Notice.

Outturn

2.2.1 Revenue Scotland reported that 2018-19 LBTT receipts were £554 million in its Annual Devolved Taxes Accounts on 2 October 2019.

Rates and bands

2.2.2 In the 2019-20 Scottish Budget, residential and non-residential LBTT rates and bands were amended, these are outlined in table 2.1.

Table 2.1 ^[2]

Residential transactions	Non-residential transactions	Non-residential leases
Purchase price	LBTT rate	Purchase price	LBTT rate	Net present value of rent payable	LBTT rate
Up to £145,000	0%	Up to £150,000	0%	Up to £150,000	0%
£145,001 to £250,000	2%	£150,001 to £250,000	1%	Over £150,000	1%
£250,001 to £325,000	5%	Over £250,000	5%
£325,001 to £750,000	10%
Over £750,000	12%

2.2.3 The Scottish Budget 2020-21 announced that all rates and bands relating to residential and non-residential conveyances for 2019-20 would remain in place in 2020-21, providing certainty for the vast majority of taxpayers.

2.2.4 Provisional affirmative legislation to introduce (from 7 February 2020) a third tax band on non-residential leases where the Net Present Value (NPV) of rental income is above £2 million was approved by the Finance and Constitution Committee of the Scottish Parliament on 26 February 2020 and confirmed by
a vote in the Scottish Parliament on 4 March 2020.

2.2.5 The Additional Dwelling Supplement (ADS) remains at 4 per cent of the total price of the property for all relevant transactions above £40,000, and will be charged in addition to the residential conveyance rates and bands.

Legislation

2.2.6 In January 2020, the Scottish Government laid legislation in the Scottish Parliament, amending Section 161 of the Revenue Scotland and Tax Powers Act 2014 (RSTPA) to provide that a daily penalty related to LBTT returns can be charged by Revenue Scotland through a single Penalty Assessment Notice. The legislation took account of a decision by the Upper Tribunal for Scotland published on 4 July 2019 regarding the application of daily penalties for late LBTT returns in circumstances where Revenue Scotland is not aware that a return is due until it is submitted.

2.2.7 The Regulations brings Section 161 into line with other penalty provisions in Sections 162 and 163 of the RSTPA, which deal with LBTT returns filed 6 and 12 months late respectively.

2.3 Scottish Landfill Tax

The Scotland Act 2012 provided for devolution of the power to introduce a tax on disposals to landfill. Scottish Landfill Tax was subsequently introduced on 1 April 2015, replacing UK Landfill Tax. It is a tax on the disposal of waste to landfill, charged by weight on the basis of two rates: a standard rate, and a lower rate for less polluting materials.

Key Development

Increase in the standard and lower rate of SLfT, with effect from 1 April 2019, and the introduction of legislation to provide for further increase from 1 April 2020.

Outturn

2.3.1 Revenue Scotland reported that 2018-19 SLfT receipts were £149 million in its Annual Accounts on 2 October 2019.

Rates

2.3.2 SLfT rates have risen in line with inflation and continue to match the corresponding landfill tax rates in the rest of the UK. The rates for 2019-20 were £91.35 per tonne for standard rated waste and £2.90 per tonne for lower rated waste with the credit rate for the Scottish Landfill Communities Fund (SLCF) marginally higher than the rest of the UK equivalent at 5.6% as set out in Chapter 2 of the Scottish Budget 2019-20.^[3]

2.3.3 The Scottish Landfill Tax (Standard Rate and Lower Rate) Order 2020 was laid before the Scottish Parliament on 4 March 2020 to provide for SLfT rates for 2020-21. The planned increase will again provide for consistency across the UK.

2.3.4 The Cabinet Secretary for Environment, Climate Change and Land Reform announced in September 2019 that full enforcement of the ban on the landfilling of biodegradable municipal waste (BMW) should be delayed until 2025 for both local authorities and commercial operators managing waste covered by the ban. Work is currently underway to explore the role that SLfT could play during this transitional period and a further announcement will be made in 2020-2021. Whilst a transitional period has been agreed, the Scottish Government remains committed to ending the practice of sending BMW to landfill, in order to contribute to climate change targets and ensure Scotland's waste is managed in a sustainable way.

2.4 Air Departure Tax

Air Departure Tax is Scotland's planned replacement for Air Passenger Duty, which was devolved by the Scotland Act 2016. The UK and Scottish governments have agreed that introduction of Air Departure Tax will be deferred beyond April 2020 to ensure it is not devolved in a defective state.

Key Development

On 23 April 2019, the Minister for Public Finance and Digital Economy informed Parliament that introduction of ADT would be deferred beyond April 2020.

2.4.1 The introduction of ADT in Scotland has been deferred to allow the issues raised in relation to the exemption for flights departing from the Highlands and Islands to be resolved.

2.4.2 The UK Government will maintain the application of Air Passenger Duty in Scotland in the interim and the Scottish Government continues to work with the UK Government to find a solution.

2.5 Aggregates Levy

Aggregates Levy is a tax paid on the commercial exploitation of aggregates i.e. sand, gravel and rock. The Scotland Act 2016 gave the Scottish Parliament the power to legislate for a tax to replace the Aggregates Levy in Scotland.

Key Development

Engagement with the UK Government on its review of the UK Aggregates Levy and progress on research to support the process of devolution.

2.5.1 Since the passage of the Scotland Act 2016, the devolution of Aggregates Levy had been prevented by ongoing European and domestic legal questions regarding aspects of the UK levy.

2.5.2 Following an announcement that these questions had been resolved, the UK Government published a discussion document outlining plans for a review of the UK levy on 13 March 2019. The Scottish and UK Governments have maintained regular engagement throughout 2019-20 to discuss the progress of the review and its relevance for devolution.

2.5.3 In preparation for the eventual devolution of the levy, the Scottish Government appointed the environmental consultancy Eunomia to review, model and analyse options for a Scottish-specific Aggregate Levy. Progress was made on this research and a report will be published in due course.