Land & Buildings Transactions Tax Sub-Sale Relief

Wed 16 Jul 2014

From 1 April 2015 SDLT will no longer apply to transactions of land situated in Scotland.  Instead Land & Buildings Transactions Tax (LBTT) will be charged under the Land & Buildings Transactions Tax (Scotland) Act 2013.

No sub-sale relief in the original LBTT

The absence of any sub-sale relief (SSR) equivalent to the SDLT relief under FA 2003 s 45 was a notable omission from LBTT as enacted. The Scottish government have now issued a consultation on a limited relief for sub sales.

Relief would be restricted to ‘significant development’

The proposal is that for a Scottish land transaction to qualify for sub sale relief: 

• there must be significant development of the land or redevelopment of the existing building; and
• this must be completed within five years of the ‘effective date’ (substantial performance of acquisition) of the land or interest in land by the developer or ‘first buyer’.

It is proposed that ‘significant development’ will be defined as development requiring an application for planning permission.  The test for ‘completed’ will be completion of the significant development or at least one part of it that is subject to a separate planning permission. Simply applying for planning permission will not count as significant, there will have to be actual development work based on the permission. Responses are requested by 29 August 2014.

The proposal in the document is that the ‘first buyer’, i.e. the person acquiring the land with a view to developing it:

• must pay the full amount of LBTT to Revenue Scotland making a return following substantial performance of the contract to acquire the land or interest in land concerned (referred to as ‘the Subject’); and
• will have to make the claim for sub-sale relief at that time.

When the second sale takes place the original LBTT will be repaid on submission of evidence to Revenue Scotland if all conditions are met. 

Interim repayments and partial completion

The first buyer will also be able to apply for one interim payment before the development is completed.

If the development is not all finished when the five-year time limit expires the first buyer will be able to apply for partial repayment in respect of those parts of the development that meet the criteria for significant development.

No pre-clearance

The consultation considers and dismisses the possibility of granting relief by pre-clearance at the time of the initial acquisition allied with provisions for a charge to LBTT should a sale after significant development not take place.

If the relief is introduced in the form preferred by the Scottish Government for the cash flow effects will impair the financial viability of developments.

LBTT rates have not been announced yet

Whatever the precise rates, LBTT will be charged using a slice structure, not the slab rates of SDLT. Therefore the problem of substantial steps-up at rate band margins will not apply under LBTT. The rates are due to be announced in September.