The Scottish government has confirmed that it will introduce legislation clarifying that a tax exemption for businesses transferring ownership of property within a group of companies using shares as financial security has been available since the introduction of Land and Buildings Transaction Tax (LBTT) in 2015
Revenue Scotland had previously indicated that there was doubt about this aspect of the devolved tax, because of differences between the way in which LBTT and stamp duty land tax (SDLT) legislation is worded. It received an official opinion that the wording had failed to give effect to the Scottish government’s official policy position.
For transactions chargeable to LBTT, group relief is available where, at the effective date of the transaction, the seller and buyer are both companies in the same group. However, there are restrictions on this if, at the effective date of the transaction, there are arrangements in place which mean that a person has or could obtain control of the buyer but not of the seller.
This meant that for LBTT, Revenue Scotland took the view that the pledging of the shares constitutes an ‘arrangement’ and as a result, LBTT is payable on the market value of the property transferred. Unlike the equivalent SDLT legislation, there is no specific provision which means that share pledges do not affect entitlement to group relief.
Now Scottish finance secretary Derek Mackay has confirmed that the government will bring forward legislation giving retrospective effect to the Land and Buildings Transaction Tax (Group Relief Modification) (Scotland) Order 2018, in line within its original policy intention.
Moira Kelly, chair of the CIOT’s Scottish technical committee, said: ‘This is a welcome step from Derek Mackay, one that will address the uncertainty and confusion that has existed for more than a year now among Scotland’s business community on the availability of group relief where share pledges are used as security in transactions.
‘The problem has stemmed from the fact that the LBTT legislation, as passed by Parliament, was incompatible with the Scottish government’s original policy intent that group relief should continue to be available in such circumstances.
‘There is always a risk with any major legislative change that anomalies such as this will appear as a new tax regime beds in. However, businesses would have expected a swifter response from government to a situation that our members tell us has resulted in a number of high value property transactions being either postponed or restructured until this clarification was provided.’
The legislation clarifying the tax treatment is effective 30 June 2018.
Report by Pat Sweet
