Before 1 April 2015, where UK real property was held within an Authorised Unit Trust (“Property AUTs”) and the Property AUT was converted to an open-ended investment company (“OEIC”) structured as a property alternative investment fund (“PAIF”), the transfer to the PAIF benefited from full relief from UK stamp duty land tax (“SDLT”). However, since 1 April 2015, land and buildings transaction tax (“LBTT”) has applied to transfers of Scottish real property rather than SDLT and the above mentioned SDLT exemption has not been included within the LBTT codes.
The SDLT exemption (available under SI 2008/710 Stamp Duty Land Tax (Open Ended Investment Companies) Regulations 2008) has been well-received by property investors, and use of the relief has become commonplace, as Property AUTs are increasingly being converted to PAIFs. Without the benefit of a similar LBTT relief, Property AUTs holding Scottish real property and seeking to convert to a PAIF structure, face a tax bill based on the full market value of those Scottish assets. It is not yet clear that a similar LBTT relief will be introduced and if LBTT is paid before any such relief is introduced, it is not certain that the tax paid could ever be reclaimed.
It is understood that the Scottish government is aware of the situation and will take steps to look into the issue. It is hoped that this discrepancy will be resolved sooner rather than later, although with the need for consultation and possibly legislative amendments if the change is approved, it may be some time before the relief is available.
In parallel to this, consultations closed earlier this year regarding the possibility of further SDLT reliefs for the “seeding” of fund vehicles, and possible changes to the SDLT rules for certain collective investment schemes. It is hoped that any new reliefs available, or changes, under SDLT will be mirrored in the LBTT regime.
The outcome of discussions surrounding LBTT reliefs for PAIF conversions is eagerly awaited. It is thought that transactions are already being delayed by the lack of this relief and a further LawNow will be issued as and when the relief becomes available.