Revenue Scotland have confirmed, in a formal Opinion, that where a parent company has given a lender a pledge over shares in its subsidiary by way of security, this will deny LBTT group relief on any transfers of Scottish property to that subsidiary by the parent. This reasoning would logically also extend to transfers to that subsidiary from other group companies. This represents a material difference in the treatment of such Scottish land transactions compared to similar transfers in the rest of the UK under the SDLT regime.

The discrepancy stems from differences in the primary legislation. While the group relief provisions for LBTT largely replicate those applicable to SDLT, the latter expressly excludes unexercised security rights from the “disqualifying arrangements” which prevent the relief being available. Regrettably, these were not repeated in the LBTT code.

This oversight appears accidental and largely a result of unfortunate timing; the relevant SDLT provisions were enacted in Spring 2013 to replace an Extra Statutory Concession covering the point up until then. By that time, the draft LBTT Bill had already been published. It did not take account of that existing Concession nor was this formal amendment to the SDLT code picked up subsequently.

Given Revenue Scotland consider themselves bound by the strict terms of the LBTT legislation and will refuse to grant group relief in these circumstances, it is imperative that the Scottish Government bring forward an amendment to the same at the earliest opportunity.  This is not seeking to gain any unfair advantage or to avoid tax but merely to reflect the position, long held throughout the rest of the UK tax code, that intra-group transfers should be tax neutral and to put LBTT on an equal footing with SDLT.

Failing that, this is another reason for those wishing to invest in the UK to shun Scotland as a location on the basis that it is less welcoming than our neighbours in the South.

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