A consultation on land and buildings transaction tax rules for property authorised investment funds

Overview

Purpose

The purpose of this consultation is to gather views from the investment management industry and other interested stakeholders on the potential introduction of an exemption from Land and Buildings Transaction Tax (LBTT) for the transfer of properties from Authorised Unit Trusts (AUTs) to Open Ended Investment Companies (OEICs) in Scotland in certain specified circumstances.

As a result of the consultation, we hope to understand the impact that this proposed change in tax treatment would have on the asset management sector, the property sector and the Scottish economy more generally. We also aim to ensure that the introduction of such an exemption would be consistent with the Scottish approach to taxation.

Proposed draft regulations can be found in Annex A.


Scope

LBTT replaced UK Stamp Duty Land Tax (SDLT) on land transactions in Scotland on 1 April 2015. The legal underpinning for the tax is found in the Land and Buildings Transaction Tax (Scotland) Act (the LBTT Act), which received Royal Assent on 31 July 2013.

LBTT legislation differs from SDLT in a number of areas, better aligning the legislation with Scots law and practices and ensuring appropriate reliefs and exemptions are applied. Scottish Ministers have also made clear that they wish to take all reasonable steps to reduce the risk of artificial avoidance of the devolved taxes, to foster a climate of tax compliance and thus help to safeguard public finances. To minimise opportunities for artificial avoidance, the Scottish approach seeks to ensure that tax reliefs and exemptions are introduced only where they are supported by a strong evidence base.


Section 46 of the LBTT Act provides for a regulation-making power which
enables Scottish Ministers to exempt from tax properties held by an AUT when it
converts to, or amalgamates with, an OEIC. The Scottish Government consulted on
proposals for LBTT subordinate legislation in May 2014. The proposed suite of
secondary legislation did not include regulations under section 46 of the Act. No
representations were received at that time on the absence of regulations, and no
regulations were made on AUTs and OEICs. Consequently, LBTT remains
chargeable on the transfer of Scottish properties held by AUTs converting to OEICs.
However, no SDLT is payable in the same circumstances on the transfer of
properties situated in England, Wales or Northern Ireland.


Since LBTT became operational, the investment management sector has
raised concerns about the impact of the LBTT charge on the planned conversion of
AUTs to Property Authorised Investment Funds (PAIFs), a form of OEIC, where
these AUTs hold property in Scotland. The Scottish Government is committed to
ensuring that Scotland remains an attractive location for investment. We are
therefore now considering proposals to exempt such transactions from LBTT.

Why your views matter

The purpose of this consultation is to gather views from the investment management industry and other interested stakeholders on the potential introduction of an exemption from Land and Buildings Transaction Tax (LBTT), for the transfer of properties from Authorised Unit Trusts (AUTs) to Open Ended Investment

Companies (OEICs) in Scotland, in certain specified circumstances. As a result of the consultation, we hope to understand the impact that this proposed change in tax treatment would have on the asset management sector, the property sector and the Scottish economy more generally. We also aim to ensure that the introduction of such an exemption would be consistent with the Scottish approach to taxation.

What happens next