David Clarke interviews Turcan Connell Partners Paul Macaulay and Louise Johnston at Turcan Connell, Princes Exchange, 1 Earl Grey Street, Edinburgh, EH3 9EE.
Following the new increased devolution settlement, the Scottish Government can now set tax in a number of areas. Turcan Connell Partners Paul and Louise discuss the changes in property tax from Stamp Duty (SDLT) to Land and Buildings Transaction Tax (LBTT).
Read our related article, 'New Land and Buildings Transaction Tax Rates'
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Hello, I'm David Clarke and welcome to the Turcan Connell videocast on Tax and Property. One of the outcomes of the increased devolution settlement is that the Scottish Government can now set tax in a number of areas. I'm here with Turcan Connell partners, Paul Macauley and Louise Johnston, and we're going to be talking about the new Land and Buildings Transaction Tax. Paul, can you tell us a bit about this new tax and what it actually does?
Well, Land and Buildings Transaction Tax, known as LBTT, is the first Scottish tax introduced by the Scottish Government and will be wholly controlled by the Scottish Government. It affects all property transactions completed after 1st April 2015 unless that transaction relates to a contract entered into before 1st May 2012 and which hasn't been varied or assigned since then. It's a progressive tax, like income tax, meaning that different rates of tax apply to the extent that the consideration goes above certain thresholds. The old style Stamp Duty Land Tax, or SDLT, was a 'slap tax'; meaning that a single rate of tax applied when the consideration went above a certain threshold.
So, Louise, can you tell me a bit more about how this tax is being administered in practice?
Well, let's take an Edinburgh property as an example; according to recent ESPC statistics, the average price of a 4-bedroom property in Edinburgh was £395,000. Someone purchasing at that price would pay £9,750 in SDLT but they'll pay £12,850 in LBTT, that's a difference of £3,100, and that cost increases significantly as the value of the property increases. A property worth £750,000 will pay £20,850 more in LBTT than they would've done under SDLT. And who is this tax paid to? Well, it's paid to a new Scottish tax authority called Revenue Scotland and that tax will be collected by Registers of Scotland as part of the process of registering a title to the property.
So, of course, the key difference is that you seem to be paying more with the new tax rather than you would be paying under the old Stamp Duty regime. Paul, can you tell me, are there any other differences between the two taxes?
Yes, well, generally, the LBTT legislation has replicated the SDLT legislation, but there are some key differences; one of those is sub-sail relief. Now, sub-sail relief is generally when there is a back-to-back transaction between A and B, and B and C, but the conveyance happens directly from A to C. Under SDLT there would be a way to avoid a double tax charge in those circumstances. Generally, that's not the case with LBTT, but there are some exceptions. Exceptions are where there are significant developments on things like wind farms, office, residential and industrial space, but expressly excluding mining and engineering work.
Yes, and there have been changes in relation to leases as well; residential leases of less than 175 years are exempt from LBTT. Non-residential leases will require to submit a LBTT return every three years. That's a new requirement that was not required under the SDLT regime, where after the initial 5-year period being used to calculate the tax due, there are no further returns required unless there was some specific requirement for it. Revenue Scotland have said they do not intend to issue reminders and so tenants will require to diarise forward to make sure they submit that return every three years.
Louise, Paul, thank you very much. So, for more information on how Turcan Connell can help you with your tax or your property affairs, go to turcanconnell.com