The Land and Buildings Transaction Tax (Scotland) Act 2013 received Royal Assent on 31 July 2013 and passed into law. The Act provides that in April 2015 stamp duty land tax ("SDLT") will be replaced in Scotland by land and buildings transaction tax ("LBTT").
LBTT is the first Scottish tax in over 300 years, but it is very similar to SDLT and many of the principles of SDLT have been replicated in the new tax. For example, LBTT is a tax on land transactions and the principle of substantial performance has also been applied to LBTT.
Due to the length of time until LBTT actually comes into force in Scotland the introduction of the tax will, at present, have no impact on the majority of those involved in property transactions. However, unlike SDLT, LBTT does not include a relief for sub-sales.
The lack of sub-sale relief will have a big impact on many development agreements and forward fund structures and as such those entering into such arrangements now in relation to land transactions which will complete near April 2015 may wish to take account of the fact that sub-sale relief may not be available.
The issues which a lack of sub-sale relief creates for those involved in development agreements and forward funding transactions have been pointed out to the Scottish Government. The Scottish Government has indicated that, in principle, it is willing to consult on a form of relief for forward fund and development transactions. Further information shall be provided on any consultation which takes place.
Further information shall also be provided as soon as we know what the rates of LBTT are likely to be. The Scottish Government has indicated that it is likely to set the rates in Autumn 2014.
The other areas where LBTT is fundamentally different to SDLT are as follows:
- LBTT is a progressive tax, meaning that the rate of tax is applied on the proportion of the price which falls within the appropriate band of tax;
- LBTT will apply to certain types of licences, most likely retail licences, such as those within airports. Regulations will be introduced specifying the types of licence to which LBTT will apply;
- SDLT is charged on leases based on the net present value of the lease. LBTT will also be charged on the net present value of the lease, however under LBTT the net present value will be calculated based on the rent payable throughout the life of the lease. To achieve this, the tenant will be required to submit a LBTT return every three years throughout the duration of the lease. This is a more administratively onerous than SDLT but does mean that the amount of tax paid will be more closely related to the rent paid under the lease.
One area where LBTT is not fundamentally different to SDLT is in relation to partnerships. It is hoped that further consultation will result in a simplification of the rules applied to partnerships under LBTT.