The problem…

Revenue Scotland has issued a written opinion stating that LBTT group relief is not available on:

  • the transfer of a property from a parent company to its subsidiary; where
  • there is a share pledge over the shares in the subsidiary.

This means that LBTT may be payable on standard intra group transfers such as hive downs or transfers between sister companies.

As share pledges form part of most Scottish security packages, this has the potential to cause difficulties in many transactions. It may also mean that LBTT group relief has been claimed in the past in circumstances where it was not due.

The cause…

This is a significant difference between SDLT and LBTT.

Both taxes contain group relief blocking provisions. The provisions apply where there are arrangements under which someone could take control of the buyer but not the seller.

Specific legislation exists within SDLT to prevent security arrangements from blocking group relief. However, this bit of the legislation is not reflected in LBTT. As such, Revenue Scotland’s view is that the blocking provision applies to some transactions where share pledges are in place.

Mercifully, Revenue Scotland seems to consider that floating charges do not trigger the blocking provisions and should not restrict the availability of group relief.

The story so far…

Efforts are being made to persuade the Scottish Government to change the LBTT legislation and remove the LBTT charge where there is a share pledge in place.

Primary legislation would need to be passed by Holyrood for any changes to have retrospective effect. Legislation passed using a statutory instrument, while quicker, would only have effect from the date on which the SI gained royal assent.

(This is not the first time the point has arisen in recent memory).

What to do if you are affected…

If you are planning intra-group transactions, it is essential to take early advice on the LBTT implications to prevent unexpected LBTT charges from arising.