Scottish LBTT round-up

On 5 December 2016, Scotland’s Finance and Constitution Committee published its Report on the first year’s operation of the land and buildings transaction tax and the following key points were set out:

1. The transition to LBTT went well and its first year was operationally successful.
2. It was too early to draw any definitive conclusions on the impact of the rates and bands, but the Scottish Fiscal Commission should continue to monitor relevant data on an ongoing basis.
3. The way in which LBTT data is presented needs to be consistent to facilitate data comparison of forecasting to outturn.  This will assist property market impact assessment.
4. The Committee faced challenges in identifying housing market trends and whether these were caused by rates and bands of LBTT or general economic position of Scotland at a given time.
5. The Scottish Government‘s review of the first year of LBTT should include an analysis of the behavioural response to LBTT, particularly in relation to homes costing between £325k and £750k. The study should account for both external influencers and ongoing trends.
6. The Committee wished to be furnished with information relating to the first time buyer market and also commentary on whether LBTT has influenced house prices in Scotland, by the Scottish Government.

 

At its recent LBTT forum in Edinburgh, which Revenue Scotland holds every six months for stakeholders, Revenue Scotland commented that it was now providing a breakdown of residential and non-residential transactions by total consideration tax bandings. Separate data relating to leases, and to net additional dwelling supplement (ADS), is now being shown, with the tax being ‘tax declared due’ (rather than tax received). Appropriate statistics setting out various management and accountability aspects of the new devolved taxes are evolving. 

 

Revenue Scotland also presented some interesting 2015/16 statistics, as follows:

Couples and the ADS

 

A new Scottish statutory instrument (SSI 2017/233) came into force on 30 June 2017. It applies to transactions with an effective date on or after 30 June and where the contract was entered into on or after 20 May 2017. This is an amending instrument because the original legislation had been too tightly drawn. It provides relief from LBTT ADS on a residential property in Scotland for couples (spouses, civil partners or cohabitants) who jointly buy a new main residence to replace a former main residence, where title to the former home is in the sole name of one of the couple. The original legislation prevented the repayment of ADS when the former home was sold because it treated ‘a couple’ in strict terms, i.e. both before and after had to be in joint names. 

 

Leases

 

The next project on Revenue Scotland’s LBTT agenda is to prepare for the commencement, from April 2018, of the three-year review attaching to leases. This is different from SDLT. The tax position for a lease that was subject to LBTT will be reviewed, and a further LBTT return must be submitted on every third anniversary of the lease to take account of any changes that have taken place in the previous three years, for example to the rental payments and any extensions or variations to the lease that have been agreed during that three year period. April 2015 saw the commencement of LBTT, so this new measure will start to become effective from April 2018.

 

A third case

 

Revenue Scotland won a case and lost another in the First-tier Tribunal for Scotland’s inaugural two cases concerning LBTT penalties (R G Anderson v Revenue Scotland [2016] TTFT 1 and Classical Land & Property Ltd v Revenue Scotland [2016] TTFT 2).

 

A further case regarding LBTT penalties has since been heard by the newly established First-tier Tribunal for Scotland Tax Chamber: M Watts v Revenue Scotland [2017] FTSTC 1. In that case, penalties totalling £890 were levied for failure to make a return where no tax was due (£100 fixed penalty and £790 based on £10 a day thereafter for up to 90 days). The taxpayer had not known that the tax return was necessary, however the appeal was refused. 

 

Justine Riccomini, ICAS