10 Dec 2012 | 08:59 am | 2 min. read
A little-noticed provision of the Scottish replacement for Stamp Duty Land Tax could create a significant windfall for the Scottish Government, according to lawyers
Commercial Property experts at international law firm Pinsent Masons say that the apparent decision to scrap 'sub sale relief' as part of The Land and Buildings Transaction Tax (Scotland) Bill could cost the industry millions in the coming years while generating additional income for government.
Sub sale relief is a form of tax break typically applied where an organisation buys land and then sells it on in quick succession.
According Alan Cook, a Partner at Pinsent Masons, the application of this relief has been common practice throughout the UK for over 100 years.
He says, "There are numerous circumstances where an organisation might legitimately seek to acquire land and then move it on quickly. Developers will often agree to buy land and then sell-off discreet parcels for development by others, which can in turn speed up the overall exploitation of land.
"In those circumstances, where an organisation has never actually held the land, the SDLT was only applied to the ultimate purchaser. Under the new rules, the tax could be applied at multiple points in a complex property project.
"That will generate additional cost for the developers and inhibit economic development at a time when this is sorely needed."
The Scottish Government stated in the newly published guidance to the new legislation that the relief is being scrapped over fears it leads to tax avoidance. However, the UK Government has taken a different view in its regulations, accepting that there is solid commercial justification for subsale relief and instead proposing to reform how it works to minimise the possibility of tax avoidance.
Pinsent Masons says that George Osborne has previously indicated that if subsale relief was not available to businesses this would not simply be a measure to prevent tax avoidance, but would be new taxation on businesses and hence also on jobs and investment.
Cook says, "There are undoubtedly circumstances where this relief is being abused and that should be addressed. However, while Westminster appears to think that scrapping the relief would be an inappropriately blunt approach to fixing the problem, Holyrood appears to have no such reservations.
"Why should restrictions be applied in the hope that they will inhibit tax avoiders, but which also exclude those who should legitimately benefit? The approach to tax avoidance should be effective enforcement, not the withdrawal of legitimate mechanisms.
"Developers have to make choices about the locations where they will best deploy their financial resources, and there will be serious concerns that this could deter developers from directing those investments towards Scotland as it will offer a less competitive tax regime."
Cook says that it is impossible to give an accurate estimate of how much money the change will generate for government as there has been no way of tracking the occasions when the relief has been applied, but that it could easily run into the millions over coming years.
International law firm, Pinsent Masons, has advised Primary Capital Partners on its management buy-out of British engineering company Foster & Freeman.
International law firm Pinsent Masons has appointed partners Mark Waddell and James Morgan-Payler to further enhance the firm's infrastructure and energy practice in Australia and across Asia Pacific.
International law firm Pinsent Masons has advised Međunarodna Zračna Luka Zagreb (MZLZ) on the c.€200 million refinance of Croatia's Zagreb Airport.
For all media enquiries, including arranging an interview with one of our spokespeople, please contact the press office on