Controversial new tax on Scottish in specie property transfers1 November 2016
Revenue Scotland has taken a controversial decision to make in specie transfers of Scottish properties between pension schemes subject to Land and Buildings Transaction Tax, on the basis that it is an acquisition of a property interest for a valuable consideration and is therefore taxable.
Land and Buildings Transaction Tax replaced UK Stamp Duty Land Tax in Scotland on 1 April 2015 and is a tax applied to residential and commercial land and buildings transactions (including commercial purchases and commercial leases) where a chargeable interest is acquired. Revenue Scotland administers Land and Buildings Transaction Tax with support from Registers of Scotland.
This move by Revenue Scotland contradicts both HMRC’s own interpretation that no Stamp Duty Land Tax applies on pension transfers and the Government’s drive to avoid barriers to transfer, following the ‘Pension transfers and early exit charges’ consultation in 2015. It could therefore be perceived as a barrier to transfer and it is particularly noteworthy in light of industry chatter about high exit charges by providers being anti-competitive and causing detriment to clients.
There is currently no implementation date mentioned, but as this is a re-interpretation of the application of Land and Buildings Transaction Tax then it could be assumed that it has immediate effect, as legislation does not need to be amended to bring about a change in Revenue Scotland’s practice.
How much of a barrier Land and Buildings Transaction Tax will be, will depend on the value of the property. Revenue Scotland has provided an example of this.
An office bought for £465,000 is charged at:
- 0% for the first £150,000;
- 3% for the next £200,000; and
- 4.5% for the remaining £115,000.
A not insignificant amount of £11,175 must be paid in Land and Buildings Transaction Tax.
Whilst this is not necessarily good news for those with SIPPs holding property in Scotland who wish to transfer, it may well bring a new opportunity for property purchases via a SSAS. This is because it is easier to change SSAS provider via a takeover, without triggering stamp duty on property assets in the SSAS. It does however highlight the importance of selecting a professional scheme administrator to ensure the scheme is run properly, as the takeover route might not be possible if the scheme is not properly administered in the first place.
A further consequence of this is the effect on death benefits. If a member dies with a Scottish property in their SIPP and the beneficiary wishes to retain the asset by transferring to a new beneficiary flexi-access drawdown arrangement this could give rise to a Land and Buildings Transaction Tax charge. It may well be that by using the common trust structure of a SSAS or Family Pension Trust, it is possible to avoid any transfer of assets on death.
We will aim to keep our advisers and clients updated with any new developments as and when they arise. In the meantime should you have any questions regarding the impact of Land and Buildings Transaction Tax, please contact us.