Amendment to land and buildings transaction tax group relief

The Scottish Government has published a statutory instrument which will extend group relief under land and buildings transaction tax (“LBTT”) to certain transactions which were previously outside the scope of such relief. The Land and Buildings Transaction Tax (Group Relief Modification) (Scotland) Order 2018 (the “Order”) will come into force on 30 June 2018 (access here).

Group relief (which is a complete relief from the LBTT charge) is provided for under schedule 10 of the Land and Buildings Transaction Tax (Scotland) Act 2013. Broadly, group relief is available in relation to a transaction where the seller and buyer are both companies in the same 75% corporate group at the effective date of the transaction. However, such group relief is restricted in relation to certain transactions where there are arrangements in place under which a person could obtain control of the buyer but not the seller.

In December 2017, Revenue Scotland published a technical bulletin which addressed the ‘arrangements’ exclusion. Revenue Scotland’s view was that the exclusion covers the situation where, on an intra-group transfer of property, there is a share pledge by virtue of which the person holding the pledge could obtain control of the transferee but not the transferor. Such share pledges are a common way of granting security over Scottish registered companies.

Following the concerns which were raised in response to the publication of this guidance, the Scottish Government announced its intention to introduce secondary legislation to remedy this position, and published a consultation paper in March 2018. One concern expressed in response to the consultation was that the LBTT treatment of group companies that had had security granted over their share capital by pledge differed from the treatment in the rest of the UK, where group relief from stamp duty land tax is available in these circumstances. In addition, concerns were raised that the exclusion from group relief of such transactions could interfere with the common practice of using share pledges in banking arrangements in Scotland.

Going forward, these concerns will be allayed by the coming into force of the Order. However, given that the Order is secondary legislation, this amendment cannot apply retrospectively and will not, therefore, remedy the position described above in respect of transactions with an effective date between 1 April 2015 and 29 June 2018. This was recognised in the consultation paper, which stated that the Scottish Government would “explore whether retrospective primary legislation would be a possible option”. We await further information regarding the outcome of the Scottish Government’s exploration of this point.

If you would like to discuss the above issues, please contact your usual CMS contact or Jim Hillan.