Taking Forward a Scottish Land and Buildings Transaction Tax Consultation: An Analysis of Responses

ANNEX THREE - RELIEFS

Reliefs

The consultation sought views on the proposed changes to reliefs on a Land and Buildings Transaction Tax (LBTT).

The Scottish Government proposes to introduce a range of reliefs broadly in line with the current SDLT reliefs that offer up to a100% discount on the taxpayer's Land and Buildings Transaction Tax payment. They also plan to amend or remove reliefs where changes are required to the Scottish system or where the relief is not used within the Scottish system.

They proposed to:

• Provide an amended Compulsory Purchase Order (CPO) relief. At present, the position is that a local authority does not pay SDLT if it purchases land or property through a CPO with the intention of transferring it directly to a third party to facilitate development. The third party remains liable for SDLT if the property exceeds the minimum threshold. The Government proposes to amend the relief so that it will be available in respect of all CPOs where the local authority transfers land to a third party, without being limited to situations where this will facilitate 'development'. This will enable local authorities to use CPOs to purchase long-term empty homes, where the home will not be structurally altered after it is resold (and so would not attract CPO relief under the current definition of 'development') without having to pay Land and Buildings Transaction Tax. In practice many empty homes are likely to be purchased for less than the minimum threshold at which SDLT currently is payable, but this will not always be the case. The proposal to widen the relief will therefore remove one potential obstacle to local authorities seeking to bring empty homes back into use. This extension of CPO relief would be available for compulsory purchases by local authorities only, and not by other bodies with CPO powers.
• Further simplify the approach to Land and Buildings Transaction Tax by not providing the following existing reliefs, which are currently not used in Scotland - either because SDLT is not normally due on these transactions or they do not operate in Scotland:
  • Right to Buy relief - this relief, which means a purchaser only pays SDLT on the discounted value of their home, rather than the full value, is not currently claimed in Scotland as only a small proportion of Right to Buy homes are valued at more than £125,000. The Scottish Government will shortly be consulting on proposals to further restrict the Right to Buy.
  • Shared Ownership relief - this relief from SDLT on the lease element of shared ownership is not needed in Scotland because, like other residential leases, shared ownership leases (known as occupancy agreements) can only last for a maximum of 20 years, although a new lease can be entered into when the old one ends if the owner and housing association agree. As a result, in Scotland the occupancy payment is never high enough to require SDLT to be paid.
  • Bodies established for national purposes relief - only one of the bodies which can claim this relief operates in Scotland (NESTA) and it is expected to be eligible for charities relief in future.
  • Collective enfranchisement by leaseholders relief - this is only available where leasehold owners of flats jointly purchase the freehold for their building. Leasehold ownership is not used in Scotland.
• Continue to provide a relief for the bulk purchase of residential housing. In order to encourage large-scale investment in the private rented sector, thus providing more homes for rent, it is fair and appropriate that landlords should be charged Land and Buildings Transaction Tax on the basis of the average purchase price of each home bought, rather than the total price of a bulk purchase.

The Scottish Government proposes the following reliefs would be carried forward from SDLT:

• Group relief will apply where land or property is transferred between two connected companies within a corporate group structure because there is in effect no change in the economic ownership of the land or property.
• Acquisition relief will apply where land is transferred between companies in the same corporate group as part of a reconstruction or acquisition.
• Charities relief will apply to land acquisitions by charities registered with the Office of the Scottish Charity Regulator (OSCR). This is a change to the current position under SDLT where charities must be recognised by HMRC to qualify for charities relief.
• Registered Social Landlords relief will apply to purchases by RSLs in certain circumstances where their purchases are part-funded with public sector funding.
• Certain acquisitions by property traders relief will apply where property is bought from the personal representatives of a deceased person or from an individual and the chain of transactions breaks down, or in part exchange for a new residential property.
• Certain acquisitions by developers relief will apply where residential property is bought by developers in part exchange for a new residential property.
• Certain acquisitions by an employer relief will apply where a purchase of residential property is made by an employer where an employee needs to change residence due to relocation of his/her employment.
• Educational bodies partial relief will apply to certain sale/long lease and leaseback arrangements involving further and higher education organisations.
• Alternative property finance relief will apply to ensure that where e.g. mortgages are structured to comply with Islamic (Shari'a) law only one Land and Buildings Transaction Tax payment is made.
• Alternative property investment bonds relief will apply to ensure no additional Land and Buildings Transaction Tax charges arise on the issue of certain Shari'a compliant property investment bonds.
• Incorporation of limited liability partnerships (LLP) relief will apply where an interest in land is transferred by a partner in an LLP to an LLP in connection with its incorporation.
• Multiple dwellings relief will apply to bulk purchases so the purchaser only pays Land and Buildings Transaction Tax based on the average purchase price of each home, not the total combined price.
• Compulsory Purchase Order relief will apply so that local authorities do not need to pay Land and Buildings Transaction Tax when they compulsorily purchase land or property and then sell it on.
• Complying with Planning Obligations relief will apply where a land transaction is entered into in order to comply with a planning obligation.
• Demutualisation of an insurance company/building society reliefs will apply to land transactions carried out at the time of the demutualisation.
• Public bodies relief will apply in cases where, as a result of Scottish legislation, there is a transfer of functions from one public body to another.
• Reorganisation of UK Parliamentary constituencies relief will apply where a local constituency association transfers land or property to another as a result of a reorganisation of UK Parliamentary constituencies.
• Crofting Community Right to Buy relief will apply to the purchase of two or more crofts under Crofting Community Right to Buy provisions in the Land Reform (Scotland) Act 2003.
• Overlap relief will ensure that there is no double charge of Land and Buildings

Transaction Tax in the overlap period when a further lease has been granted.

• Subsale relief will apply where A contracts to purchase land from B, but sells it on to C before the completion of the former contract. In this case, there will only be one transaction where there is a requirement to pay Land and Buildings Transaction Tax.
• Sale and leaseback relief will apply to the leaseback element of a sale and leaseback arrangement.
• Transfers under specified legislation relief: this refers to various miscellaneous provisions - see
  http://www.hmrc.gov.uk/manuals/sdltmanual/SDLTM29600.htm
• Zero Carbon Homes relief will continue the temporary relief to provide full or partial relief for homes certified as meeting zero carbon standards (although the Scottish Government will consult on changes to the required standards, which will be set out in future regulations).
• Diplomatic premises relief will apply where premises are purchased or leased by foreign governments.
• Sovereign bodies and international organisations relief will apply where headquarters are purchased or leased by these bodies.