The Scotland Act 2012 provides that Stamp Duty Land Tax will be abolished for Scottish purposes and will be replaced by a new Scottish property tax with effect from April 2015. Land and Buildings Transaction Tax (LBTT) will be created by the Land and Buildings Transaction Tax (Scotland) Bill, presently making its way through the Scottish Parliament and expected to receive Royal Assent in summer 2013.
The Bill as currently drafted provides for a number of reliefs from LBTT including charities relief. The detailed provisions for charities relief state that:-
- A property will be exempt from LBTT if (1) the buyer is a charity; and (2) the qualifying conditions are met;
- The qualifying conditions are that the charity intends to hold the property (or the greater part of it) for qualifying charitable purposes, and the transaction has not been entered into for the purpose of avoiding tax; and
- Qualifying charitable purposes include holding the property for the charitable purposes of the buying charity or of another charity, or as an investment from which profits will be applied for the buying charity's charitable purposes.
So far so good. But there is a problem for cross-border charities hidden in the detail of the Bill. The problem flows from the definitions of"charity" and"charitable purposes". The Bill states that those two terms will be defined in accordance with the Charities and Trustee Investment (Scotland) Act 2005 (the 2005 Act). This presents a difficulty for cross-border charities created in England & Wales or Northern Ireland, and which own property in Scotland for investment purposes. Charities created outside the UK will also be affected.
The 2005 Act provides that a"charity" is a body entered onto the Scottish charity register. While cross-border properties which"occupy" land or premises in Scotland or which"carry out activities from" an office, shop or similar premises must register with the Office of the Scottish Charity Regulator (OSCR), there is no requirement for registration of cross-border charities who merely"own" premises in Scotland. As a result, cross-border charities which own Scottish property for investment purposes, but who are not otherwise eligible to register with OSCR, will not qualify for tax relief under the new LBTT regime unless they register with OSCR.
The Explanatory Notes to the Bill state that a cross-border charity may register with OSCR at no cost, but that is not accurate: there is no method of registration if the statutory criteria are not met; there is no discretion to OSCR to register cross-border charities if the criteria are not met; and registration with OSCR often does involve expense, including constitutional changes and additional work arising from dual registration.
Cross-border charities owning investment property in Scotland would be well advised to watch the progress of the Bill in order to assess what their exposure to tax might be. Read our detailed Briefing Note on the subject for more information.