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Land and Buildings Transaction Tax: Stamp Duty for Bravehearts

27 January 2014

The Land and Buildings Transaction Tax Act was passed on 25 June 2013, introducing the first purely Scottish tax in more than 300 years (from 1 April 2015). Partner David Gibson asks: Is it a trailblazer for things to come?

A chance to administer tax more efficiently and generally do it better, as the Scottish Government suggests. Or, more bureaucracy for hard pressed lawyers and increased transaction costs for a property industry already, to put it mildly, severely squeezed?

The Scotland Act 2012 fully devolves to the Scottish Parliament control over the new LBTT and landfill tax. Income tax will be partially devolved from 2015/2016. It is not surprising LBTT (stamp duty for the on-line age) is the first as it is relatively certain of collection (though not always simple), essentially relying on solicitors dealing with property transactions for its administration.

The bigger picture is that the Block Grant from the UK Government will be reduced to take account of the revenue that would have been raised from SDLT (and landfill tax) in Scotland. It may be a tricky discussion against the background of a depressed property market. The Scottish Property Federation, for example, have suggested the forecasts for SDLT on which the discussion might be based are widely optimistic.

So what does it mean in practice?

The key elements of LBTT are clear. The most striking difference is that, rather than the current SDLT “slab” approach, it will be a progressive tax. In other words, LBTT will apply at the relevant rates up to the threshold and only at the (higher) rates above those thresholds. That is welcome.

For purchases there will be a 0% rate and at least two higher rates. The most politically trumpeted aim is to take lower value properties out of tax, to encourage “first time buyers”.

An indicative threshold of £180,000 is mentioned. That is fine, but it is also anticipated that overall the tax is going to be more than at present. The stated political principle of “ability of the individual to pay” in truth usually just means higher rates for higher value properties. Not necessarily fair in practice. The last thing an embattled commercial property industry needs is higher transaction costs.

What is good for the property industry most would argue is activity and that is what boosts tax revenues (as well as the many jobs reliant on the industry), not higher rates in themselves.

The new Revenue Scotland will manage devolved taxes. Registers of Scotland will collect LBTT. Much work remains to be done within tight deadlines and very low sounding budgets. That said, as collection relies on solicitors dealing with property transactions and given the widespread consultation, it is almost certain issues will be cleared.

The detail will initially owe much to SDLT. That is understandable given familiarity will assist the transition. If it is so similar, you might ask what is the point of doing it. Apart from the political drivers, the claim is that it is an opportunity to better reflect Scottish practice.

Much is made of the intention to tighten up tax avoidance opportunities. Simplification is always welcome, although the opportunities for “doing a Google” in the context of SDLT are - for most - limited. It is generally true that if a tax is simple and fair in the first place, there is less incentive for avoidance measures.

Reliefs and exemptions will be tidied up in what generally seem sensible ways. Some areas, such as sub-sale relief, are more controversial and consultations will continue.

Leases are a complex area and are still under consideration. It is clear licences to occupy will no longer be exempt. Notwithstanding that, licences are frequently used in legitimate circumstances, for example, by retailers in short term concessions and the change may cause confusion.

There continues to be an opportunity for consultation to a degree and to help craft something fit for purpose and better aligned with Scottish practice. Most practitioners would get behind that aim, albeit with a fear that this - for the majority and certainly the mid to upper market - is going to add transaction costs and make Scotland a less, rather than more, attractive destination for their clients.

The reverse, of course, is at least possible in the longer term.

David Gibson can be contacted on 0141 225 5288 or

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