Land and buildings transaction tax reform ‘overdue’, says expert

Andrew McCarthy of Pinsent Masons was commenting after the Scottish government opened a consultation on proposed changes to tax legislation in Scotland, which would exempt a wider range of property fund-related transactions from the LBTT regime and provide for tax relief on others.

LBTT replaced stamp duty land tax (SDLT) for transactions in land situated in Scotland from 1 April 2015. The SDLT regime continues to have effect in England. In Wales, an equivalent but distinct land transactions tax (LTT) regime applies.

LBTT is payable on land transactions where the land is in Scotland. A 'land transaction' is any "acquisition of a chargeable interest". This is widely defined and can include the transfer of a property and the grant, assignation, variation or surrender of a lease as well as some other less common transactions. Options in land, licences to occupy land and statutory rights such as community interests in land are also chargeable interests. Certain interests are not subject to LBTT, such as the grant of residential leases, or where property is gifted.

LBTT is payable on "chargeable consideration". As with SDLT, this includes both the money and 'money's worth' which is given directly or indirectly by the purchaser or a connected person. It can also include the release or transfer of a debt.

The Scottish government’s consultation seeks views on three specific issues focused on the interaction between investment funds and LBTT.

One of its proposals is to exempt, from the LBTT, the transfer of units within Co-ownership Authorised Contractual Schemes (CoACS) where property is held as an underlying asset of those units. The proposed new legislation would achieve this “by treating the scheme itself as a company and the units as shares in a company”, the Scottish government said. The planned move would mirror what already happens under the SDLT and LTT regimes.

A similar proposal concerns a different type of property fund – Reserved Investor Funds (RIFs). The transfers of units by RIFs do not give rise to an SDLT liability on the underlying assets held by the fund. The Scottish government is proposing to introduce a similar exemption to the LBTT.

The Scottish government is also proposing to provide for so-called ‘seeding relief’ to be claimed in relation to the acquisition of property by CoACS, RIFs and Property Authorised Investment Funds (PAIFs) from other types of investment vehicles. The proposal, which again reflects the existing position under the SDLT regime in England, reflects proposals that were previously consulted on by the Scottish government in 2018 but were not then taken forward.

Andrew McCarthy of Pinsent Masons said: "This consultation raises the tantalising prospect of long overdue reforms to LBTT to bring it into line with SDLT and increase the attractiveness of property fund investments in Scotland."

The consultation closes on 5 September 2025.