A new Land and Buildings Transaction Tax for Scotland

The Scotland Act 2012, which was passed by the UK Parliament in April 2012, gives the Scottish Parliament new financial powers including the power to set taxes on land transactions and disposals to landfill. The current UK tax payable on land and property transactions (known as Stamp Duty Land Tax or SDLT) and the current UK landfill tax will cease to apply in Scotland from April 2015. The Scottish Government has issued the first in a series of consultation papers on these new taxation powers. The consultation seeks views from any interested parties on the proposed Land and Buildings Transaction Tax (the replacement for SDLT). The current consultation will be followed by the introduction of a Bill to the Scottish Parliament in autumn 2012 and by further consultations on a tax on disposals to landfill and on tax management arrangements.

Why change?

The Scottish Government believes that taxes paid in Scotland should be set and collected in Scotland.  Although the new taxation powers for the Scottish Parliament are modest, the Scottish Government believes they are a first step on a journey towards much greater financial self-determination for Scotland.  The new powers also provide an opportunity to align the Land and Buildings Transaction Tax system better with Scots property law than is currently the case under SDLT.

Similar but different

The Scottish Government intends to adopt many of the features of the current SDLT system. For example, a Land and Buildings Transaction Tax return would require to be submitted before the documents relating to the transaction could be registered, which follows the rules for SDLT. The majority of reliefs and exemptions which apply to SDLT are also likely to continue, subject to a few tweaks to remove reliefs which are not used in Scotland. Similar anti-avoidance measures to those applying under SDLT are proposed, although the Scottish Government is seeking views on whether a more general anti-avoidance rule should be imposed in addition. As at present, the Scottish Government intends to impose a lower top rate of tax for commercial property compared with the rate applied to residential property. This will be welcomed by all parties involved in commercial property transactions in Scotland. As the top rate of tax for residential property is now (in restricted circumstances) 15% it is to be hoped that the Scottish Government also intend to keep the rates no higher than in the rest of the UK.

Progressive vs slab approach

The Scottish Government favours structuring the tax with different thresholds below which either no tax, or a lower rate of tax, would be due.  This is similar to the SDLT system which currently operates across the UK.  However, the SDLT system utilises what is known as a "slab" approach, whereby if the price paid for a particular property lies above one of the thresholds, the whole price is taxed at the higher rate.  It has been argued that this approach is unfair. One significant difference from the current rules is a proposal for a more progressive tax structure, similar to that of UK income tax.  For example, any property sold for a price which was above the first threshold but below the second threshold would be charged tax only on the amount by which the price exceeded the first threshold and so on throughout each of the thresholds.  It is likely that this would lead to purchasers of property priced immediately below a threshold paying more tax than at present, but it would be fairer for purchasers of property priced immediately above a threshold who would pay less tax than at present.

What else?

The Scottish Government intends to set up a new body, Revenue Scotland, to oversee administration of the tax. Revenue Scotland will work with Registers of Scotland to set up systems for collection of the tax at the point of registration of the land transaction documents.
No details are provided at this stage of the proposed tax rates and thresholds.  This information will not be available until much closer to the April 2015 start date, when the prevailing economic circumstances at the time will be known.


The proposals have been generally welcomed by commercial property industry bodies such as the Scottish Property Federation.  Much detail remains to be resolved, but proposals such as employing a progressive approach rather than the current "slab" approach will be welcomed by all.

Responses to the consultation are requested by Thursday 30 August 2012.  The consultation documents can be accessed here.