Land tax 'could deter investment'

Dec 10 2012

A bid to stop property developers dodging Scotland's new land tax could cost the industry millions and deter investment, according to a property law firm.

The Scottish replacement for stamp duty land tax (SDLT) has been described as a historic first as it will allow the Scottish Parliament to both set and collect a proportion of its own revenue.

But a "little-noticed provision" could result in a "significant windfall" for the Scottish Government at the expense of developers, according to Pinsent Masons.

The law firm describes the provision as "a tax on business, jobs and investment", and said it could deter investment in Scotland and inhibit economic development.

Its concerns relate to the removal of a century-old "tax break" called sub-sale relief, which applies when land is bought and then quickly sold on. The SNP administration said its proposals are "revenue neutral".

A policy memorandum setting out the Government's aims for its Land and Buildings Transaction Tax (Scotland) Bill states that there is "strong evidence to suggest that the sub-sale rules act as a gateway to a significant amount of (tax) avoidance activity".

Pinsent Masons partner Alan Cook said: "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."

A Scottish Government spokeswoman said: "The Scottish Government is committed to a transparent and fair tax system and the sub-sale rules which currently exist are recognised as a potential gateway to tax avoidance activity.

"Our overall proposals for LBTT are revenue neutral and we are not expecting to raise substantial resources from this change. The draft legislation is now before the Scottish Parliament's Finance Committee for detailed scrutiny. We will carefully consider all evidence submitted."