Implementation of the Scotland Act 2016: third report

2. Chapter Two – Fully Devolved Taxes

2.1 Costs

£m	2016-17	2017-18	2018-19 forecast
Administration	4.5	5.5	7.8
Implementation	0	0.2	0

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 (LBTT)

Land and Buildings Transaction Tax (LBTT) 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

• Amendment of LBTT legislation to introduce a first-time buyers relief and amend group relief provisions
• Amendment of the rates and bands for non-residential LBTT and an increase from 3% to 4% for the LBTT Additional Dwelling Supplement
• Introduction of legislation to enable Revenue Scotland to share protected taxpayer information with the Welsh Revenue Authority (WRA)

Outturn

2.2.1 Revenue Scotland reported that 2017-18 LBTT receipts were £557 million in its Annual Accounts on 2 October 2018.

Rates

2.2.2 In 2018-19, residential and non-residential rates and bands were maintained at 2017-18 levels and are summarised in the following table.

Table 2.1 LBTT Rates and Bands for Residential and Non-residential Property Transactions in 2018-19

Residential transactions		Non-residential transactions		Non-residential leases
Purchase Price	LBTT Rate	Purchase Price	LBTT Rate	Purchase Price	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 £350,000	3%	Over £150,000	1%
£250,001 to £325,000	5%	Over £350,000	4.5%
£325,001 to £750,000	10%
Over £750,000	12%

The Additional Dwelling Supplement (ADS) is 3 per cent of the total price of the property for all relevant transactions above £40,000, and will be charged in addition to the rates set out in Table 2.1.

2.2.3 The 2019-20 residential and non-residential rates and bands announced at the Scottish Government's Budget on 14 December 2019 are summarised below. Legislation to amend the rates and bands for non-residential LBTT and to increase the amount of the Additional Dwelling Supplement (ADS) to 4% was approved in January 2019. The changes, which came into effect from 25 January, are as follows:

• Reduction in the lower rate of non-residential LBTT from 3 per cent to 1 per cent, increase in the upper rate from 4.5 per cent to 5 per cent, and reduction in the starting threshold of the upper rate from £350,000 to £250,000.
• Increase in the ADS rate from 3 per cent to 4 per cent.

Table 2.2 LBTT Rates and Bands for Residential and Non-residential Property Transactions in 2019-20

Residential transactions		Non-residential transactions		Non-residential leases
Purchase Price	LBTT Rate	Purchase Price	LBTT Rate	Purchase Price	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%

The new ADS rate of 4 per cent applies to the total price of the property for all relevant transactions above £40,000, and will be charged in addition to the rates set out in Table 2.2.

Relief for first-time buyers

2.2.4 In June 2018, the zero rate tax threshold for first-time buyers was effectively raised from £145,000 to £175,000. This was achieved by the Scottish Parliament approving the Land and Buildings Transaction Tax (First-Time Buyer Relief) (Scotland) Order 2018^[2], which introduced a new Schedule 4A to the Land and Buildings Transaction Tax (Scotland) Act 2013. First-time buyers buying a property above £175,000 will also benefit from the relief on the portion of the price below the threshold.

Provisions for group relief

2.2.5 In June 2018, the Scottish Parliament approved the 'Land and Buildings Transaction Tax (Group Relief Modification) (Scotland) Order 2018'. The order amended Schedule 10 of the LBTT Act to make it clear that group relief would be available where there is a transfer of properties between companies within the same corporate group structure and there is a 'Share Pledge' or similar security arrangement in place, provided by a lender outside of the group structure. The Relief will be withdrawn where an event results in the lender exercising its relevant security rights within a three year period.

Inter-Tax Authority Data Sharing

2.2.6 In December 2018, Parliamentary approval of 'The Revenue Scotland and Tax Powers Act 2014 (Ancillary Provision) Order 2018' allowed Revenue Scotland to share protected taxpayer information with the Welsh Revenue Authority under Section 15 of the Revenue Scotland and Tax Powers Act 2014 (RSTPA). This enables Revenue Scotland, the Welsh Revenue Authority and Her Majesty's Revenue and Customs (HMRC) to engage in tripartite discussions regarding tax compliance and replicates the arrangements in place between HMRC and Revenue Scotland, and HMRC and the Welsh Revenue Authority.

2.3 Scottish Landfill Tax (SLfT)

Scottish Landfill Tax (SLfT) was 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

• Amendment of the rates and bands for SLfT from 1 April 2019

Outturn

2.3.1 Revenue Scotland reported that 2017-18 SLfT receipts were £149 million in its Annual Accounts on 2 October 2018.

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. A rate-setting Order for SLfT was laid before the Scottish Parliament on 20 February 2019, and these rates are now in place for 2019-20.

Table 2.3 SLfT Rates 2018-19 & 2019-20

	2018-19	2019-20
Standard Rate of SLfT	£88.95 per tonne	£91.35 per tonne
Lower Rate of SLfT	£2.80 per tonne	£2.90 per tonne
Credit Rate for Scottish Landfill Communities Fund	5.60%	5.60%

2.4 Air Departure Tax (ADT)

The Scotland Act 2016 provides for Air Passenger Duty to be devolved. The UK and Scottish Governments agreed in November 2017 to delay Air Passenger Duty devolution, and the introduction of the Scottish Government's replacement Air Departure Tax.

Key Development

• On 1 June 2018, the Cabinet Secretary for Finance, Economy and Fair Work informed Parliament that introduction of ADT would be deferred beyond April 2019.

2.4.1 The introduction of ADT in Scotland has now been deferred beyond April 2019 to allow the issues raised in relation to the exemption for flights departing from the Highlands and Islands (H&I) 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. A new H&I Working Group has been convened from organisations with expert knowledge of the H&I economy to help explore options.

2.4.3 Revenue Scotland will be responsible for collecting and managing Air Departure Tax. They have communicated a high-level 'start-up' plan to the Scottish Government to help inform plans for introduction in the future.

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

• Completion of research commissioned to review, model and analyse options for a Scottish specific Aggregate Levy in order to support the process of devolution.

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

2.5.2 However, the UK Government has recently announced that these questions have been resolved and subsequently published a discussion document outlining plans for a review of the UK levy on 13 March. The Scottish and UK Governments will be discussing the review and its implications for the timing of devolution.

2.5.3 In preparation for the eventual devolution of the levy, the Scottish Government appointed the environmental consultancy Eunomia in 2018 to review, model and analyse options for a Scottish specific Aggregate Levy. Work on this report has been undertaken throughout 2018-19 and a final report was submitted in March 2019.