Tomorrow, Stamp Duty Land Tax will be no more – but only in Scotland. On 1 April the new Land and Buildings Transaction Tax (LBTT) comes into force, an example of one of the revenue-raising powers devolved to Holyrood following the passage of the Scotland Act 2012. LBTT will be administered and collected in Scotland through the newly established “Revenue Scotland” rather than by HMRC.
The rates and bands for LBTT have finally been approved by the Scottish Parliament and for many commercial transactions LBTT will be higher than SDLT. The top rate of 4.5% will apply to any consideration above £350,000 and this may result in a significant increase compared to the 4% charged on purchase prices over £500,000 elsewhere in the UK.
So, for any land transaction in Scotland with an effective date on or after 1 April 2015, it’s goodbye SDLT, hello LBTT. So far, so good but how does this impact on portfolio deals where some properties are in Scotland and others are elsewhere in the UK?
First, transactions which relate to land in Scotland will no longer be “linked” (for SDLT purposes) either with:
- land transactions elsewhere in the UK; or with
- Scottish land transactions which were subject to SDLT.
This means that where a transaction involves land in both Scotland and elsewhere in the UK, only the non-Scottish interests will be included in the SDLT return and if the price isn’t specified for each property, it has to be apportioned on a just and reasonable basis to work out the non-Scottish amount.
Second, transitional provisions will apply to contracts entered into on or before 1 May 2012 to ensure that transactions are not taxed twice (by both SDLT and LBTT) and to ensure that tax is payable under LBTT if it is no longer payable under SDLT.
Finally, watch out for land swaps involving the exchange of land in Scotland for land elsewhere in the UK. The usual SDLT “exchange” rules (which say that the chargeable consideration is the market value of the interest acquired) won’t necessarily apply.
So where does that leave us?
It’s clear that, just as the triggers for SDLT can be complicated and unexpected, LBTT will have similar complexities and – if you are entering into a transaction which will relate to an interest in land in Scotland – you will need Scottish law advice in relation to LBTT. As Scottish land law is already entirely different to the law elsewhere in the UK, you should already have Scottish legal input in any case.
So this year, if you have entered into or are about to enter into a transaction involving interests in land north of the border, April Fools’ Day is no laughing matter – it’s time to get bothered.