John Swinney has announced the proposed rates and bands for the Land and Buildings Transaction Tax (LBTT) as part of the Draft Budget.

LBTT will replace Stamp Duty Land Tax (SDLT) in Scotland on 1 April 2015.  The new tax will have a progressive structure to bands and rates (i.e. tax is charged on the proportion of the price exceeding the threshold (like income tax) rather than charging the higher rate of tax on the whole price (per SDLT). This approach is intended to remove the distortions in house prices which may result from the bunching of sales around the thresholds that can occur with SDLT. 

Residential Purchases
The rates and bands which apply to the purchase of residential properties are as follows: 

Non-Residential Purchases
The rates and bands which apply to the purchase of non-residential properties are as follows:

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Non-Residential Leases
The rates and bands which apply to non-residential leases are as follows (as with SDLT, the rates are applied to the Net Present Value (or NPV) of the rent payable under the lease):

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The following tax rates and bands will also be applied to any premium payable under the lease:

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Further information and tax calculators are available from the Scottish Government here.
A summary of the Land and Buildings Transaction Tax (Scotland) Act 2013 is available here.

The Land and Buildings Transaction Tax (Scotland) Act was passed on 25 June and received royal assent on 1 August 2013. Some points of note:

• The new tax will to come into effect in April 2015 (when SDLT ceases to apply in Scotland);
• the Act is the first of three- a Landfill Tax Act and Tax Management Act will follow;
• the Scottish Ministers are the tax authority (s54) but the authority can be changed by order (a new body, Revenue Scotland has been established for that purpose);
• the tax authority can delegate administration and collection of the tax to Registers of Scotland (s55) (an idea first suggested by my colleague James Aitken);
• the tax will be progressive, i.e. tax is charged on the proportion of the price exceeding the threshold (like income tax) rather than charging the higher rate of tax on the whole price (per SDLT)(ss24-26)
• like SDLT, LBTT will be charged on VAT (para 2, Schedule 2)
• the Act contains a number of targeted anti-avoidance rules applying to specific exemptions and reliefs. The Scottish Government has consulted on the introduction of a general anti-avoidance rule (“GAAR”) and it is likely that a GAAR will be included in the Tax Management Act;
• LBTT on commercial leases will (like SDLT) be based on net present value of the rent payable (s52 and Schedule 19) but the Act also makes provision for a return to be made every three years (and for additional payments or refunds) throughout the whole term of the lease so that the tax will reflect the actual rent paid;
• residential leases are exempt (s16 and para 3, Schedule 1);
• licences to occupy are exempt (s16 and para 3, Schedule 1) but “prescribed non-residential licences” which are to be prescribed in future regulations will be taxed; and
• the Act replicates existing SDLT provisions on partnerships (s49 and Schedule 17) & trusts (s50 and Schedule 18). However, the Scottish Government may make changes to these provisions (in the interests of greater clarity) before LBTT comes into effect.
• The rates and bands can be seen here.

The full Act is available here.

My final “tax land” of 2012 as I have a looming chapter deadline on the subject of a Scottish tax system.

Where to start?  Let’s start with the UK Chancellor’s “Autumn” statement.

George Osborne admitted that the UK had missed its debt reduction targets putting the UK’s AAA credit rating under threat.  Osborne also announced that the planned rise on fuel duty is to be axed and the personal allowance of income tax payers is to be boosted.  Benefits are to be limited to a 1% rise a year for the next 3 years and economic growth will be lower than predicted until at least 2018.

In response the Institute of Fiscal Studies warned that one million people will find themselves joining the higher 40p income tax rate by 2015.  Far higher than the 400,000 figure quoted by Osborne.  The IFS also said further austerity measures to increase taxes and cut benefits were unavoidable to fix a £27bn black-hole in the UK economy before the next UK General Election.

Figures also showed that poorest 30% of households will suffer the most under the changes announced.  More on this from the Scotsman can be found here.

The AAA rating is of course an issue in the independence referendum.  One of the arguments made by those arguing NO is that an independent Scotland, notwithstanding its oil reserves, would lose its AAA credit rating.  This issue is now a problem for the NO campaign as the UK, in the event of a YES vote, would presumably be desperate to retain Scotland in a monetary union to protect its credit rating.

The YES campaign also received a further boost when it was confirmed that nearly 17 billion barrels of oil are to be recovered from the North Sea over the next 30 years following a £134bn investment by oil and gas companies.  The majority of the new developments will be in Scottish waters while production from gas fields in the southern North Sea begins a dramatic decline. More on this from the Scotsman can be found here.

Now to the tax avoidance debate.

The House of Commons Public Accounts Committee has warned officials from HMRC that firms that devise complicated tax regimes are “running rings” around them. The Committee Chair, Margaret Hodge MP, said that the public would consider such schemes “completely and utterly immoral”. More on this from the Guardian can be found here.  My recent blog on this and the lack of political will to reform the UK’s tax system can be found here.

Meanwhile the Chief Secretary to the UK Treasury, Danny Alexander, has warned against naming and shaming large firms who do not pay the correct amount of tax, insisting that he is obliged to defend firms’ “taxpayer confidentiality”. More on this from the Mirror can be found here.  This adds to the growing evidence that the UK Government is at best being half-hearted in its attempts to tackle this issue.

Further evidence for this claim can be found when you consider that only 5% of the UK Government’s announced investment into HMRC will be aimed at tackling tax avoidance.  The context to this is of course the large budget reduction and cut in staff numbers already made to HMRC.  More on this from the Times can be found here.

According to an investigation by the Times, offshore companies are exploiting a tax loophole which allows them to buy up some of the UK’s most expensive homes and avoid paying property stamp duty, inheritance tax and capital gains tax.  More on this from the Times can be found here.  The Times has done some excellent work on this issue over the last few months.

Figures from HMRC show that the number of people declaring an annual income of more than £1m fell from 16,000 to 6,000 after the previous 50p top rate was brought in.  More on this from the Telegraph can be found here.  What this statistic purports to show is though open to debate.

Final point on the tax avoidance and tax evasion debate.  The claim that I have made on many occasions that tax for some, namely large companies and the wealthy, is becoming a matter of negotiation – almost voluntary in nature – seems now to be generally accepted.  That is clearly what Starbucks think.

The Scottish Government has unveiled plans to reform stamp duty land tax in Scotland.  The importance of this should not be underestimated.  The Scottish Government must show that it has the competence to deal with tax matters.  The signs so far are positive.  More on this can be found here.

Now to matters slight further afield.

France’s Senate has rejected the Government’s 2013 Budget, which among other measures raised the marginal tax rate on annual income of over €150,000 to 45%, imposed a 75% “solidarity contribution” on income over €1m, and raised capital gains tax rates to match income tax rates.  The Budget will though almost certainly be forced through by the National Assembly.  More on this from Tax-news can be found here.

The Republic of Ireland Government has revealed its 2013 Budget.  It introduces a new annual property tax of 0.18% on properties valued below €1m, payable by owners.  More expensive properties will be taxed at €1,800 plus 0.25% of their value over €1m.  Initially, and until 2016, owners’ valuations will be accepted.  More on this from the Irish Times can be found here.

Finally to the USA.  The US Internal Revenue Service has published guidance on calculating the new 3.8% tax on investment income, imposed to pay for President Obama’s universal health insurance plan.  More on this from the Journal of Accountancy can be found here.

This has been a very interesting year for all those interested in tax and the wider Scottish tax and fiscal powers debate. I suspect that is not going to change in 2013.  Best wishes to you and yours for 2013.

Let’s start with Gordon Brown’s comments and in particular his claim that devolving tax and fiscal powers to the Scottish Parliament automatically means a “race to the bottom” for tax rates and in particular business tax rates.  There are a number of problems with this statement.  I will simply point out two.  Tax competition already exists.  Not just within the European Union but throughout the world.  Then there is the fact that the underlying law, for example tax reliefs, are just as important as tax rates to business.  Creating a Scottish tax system is also a once in a generation chance to create a simpler and more progressive tax system.  This opportunity is not available to the UK.  Evidence that the present Scottish Government is already putting this opportunity into practice is shown by its excellent consultation on a Land and Buildings Transaction Tax.  My earlier blog on this can be found here. 

Again on tax powers for the Scottish Parliament.  I was disappointed, but sadly not surprised, to see another patronising picture accompanying an article in Tax Adviser on the subject of the tax powers being devolved to the Scottish Parliament.  First we had a man in a kilt holding a whisky bottle and this month a scene from the movie Braveheart.    

Now to some incredible news.  HM Treasury is going to employ someone in Scotland.  I wonder if this has anything to with a certain referendum.  Of course it does.  An article on this from the BBC news website can be found here.  I did find it amusing that the position ends shortly after the proposed referendum date.  I should not be so cynical.  It is good that HM Treasury is going to try and find someone to appease the natives.  I suspect they have run out of gunboats. 

Now to HMRC.  HMRC is clearly under strain.  In addition to having to deal with numerous devolution issues its budget is being reduced by 15% whilst having to increase tax revenues brought in by compliance activity by £7bn per year by 2014/15.  Not surprisingly HMRC staff have begun “working to rule” to highlight ‘problems caused by the job and budget cuts. 

I was also interested to see that HMRC has published a draft code of governance for resolving tax disputes.  This follows the controversy surrounding some corporate tax disputes of which it was accused of agreeing over-generous resolutions.  An article on this issue can be found here.  

Clearly the UK Government is keen to show it is clamping down on tax evasion.  HMRC has paid out more than £1m in rewards to tax evasion informants since the start of the financial crisis.  An article on this can be found here.  And just to reinforce the point HMRC has published its rogues gallery of tax evaders and fraudsters.  An article on this from the BBC news website can be found here.

Now to an issue I have blogged on recently.  The Office of the Scottish Charity Regulator is reportedly to investigate 50 private schools to see if they meet the “benefit to the public” criteria in order to maintain their charitable status.  An article on this from the Sunday Herald can be found here.  This is an issue that still needs to properly debated.     

Now to the strange world of caravans and an article from the Herald.  It seems that a little-known tax loophole is set to cost Scotland’s councils millions of pounds a year in revenue.  Each caravan in a caravan park can apply for rates relief, which in turn cuts the overall bill for the park considerably.  It seems that few people knew about this loophole until the owners of caravans in the Rosneath Castle Caravan Park, near Helensburgh, first began using it. The 300 caravan owners at the park have now bombarded the Clydebank business ratings assessors’ office with letters and phone calls, each seeking to save a few hundred pounds per year in council rates.  The article from the Herald can be found here. 

Now to the USA and news that the Democrats are split over estate tax reform.  Democratic Party members of the US Senate have rejected President Obama’s proposal for a 45% top rate of federal estate tax on individual estates worth more than $3.5m.  The tax will rise sharply at the end of this year if Congress fails to agree on reform.  An article on this from Bloomberg can be found here.

Tax is also an issue in the Presidential election.  The Democrats have succeeded in turning the finances of Republican presidential candidate Mitt Romney into a lead news story.  Pressure is growing on Romney to reveal tax returns.  There are accusations that he failed to disclose a Swiss bank account, and even that he participated in the US Internal Revenue Service’s 2009 offshore tax amnesty.  An article on this from Forbes can be found here.

Let’s finish with an old favourite.  It seems that there have been some financial transaction tax stirrings in both Korea and France.  In order to bring the taxation of derivatives in line with other earned income and introduce another revenue source, the Korean Government has announced plans to impose a transaction tax on index options and futures.  France has also partially implanted its own financial transaction tax.  Although a small start, covering only shares in larger companies, and at 0.2%, it’s still lower than UK stamp duty on which it is modelled. Articles on the Korean proposal can be found here and the French proposal here.

Have a good weekend.

Let’s start with “Land Reform”.  The First Minister has set up a group of experts to look at this issue.  The First Minister wants the group “to deliver radical change” for both rural and urban areas.  It will be chaired by former Moderator of the General Assembly of the Church of Scotland, Dr Alison Elliot.  More information on the review can be found here.  One factor that is noticeable by its absence is taxation.  This should also be a review of how we tax our land and property.  If not included this is an opportunity missed.

Who is to blame for the state of the economy?  You would have though bankers might be high up on any list.  However, it seems there is another favoured suspect, tradesmen.  David Gauke, Exchequer Secretary at the UK Treasury, called people who pay tradesmen in cash “morally wrong”.  He has also claimed that the UK Government has missed out on about £2bn on taxes on these “off the books” transactions.

In response the regularly excellent Ian Bell wrote an article titled “Plumbers dodging VAT aren’t to blame for economic mess”.  His article in the Herald article can be found here.  This is one of the best articles I have read recently.

Gauke was also not helped when it transpired that Boris Johnson, David Cameron and Nick Clegg have engaged in the practice of paying tradesmen cash.  Gauke’s full speech can be found here.

The tradesmen issue aside, there were many good things in Gauke’s speech.  This includes a new UK Treasury consultation paper on giving HMRC new powers to force tax firms to disclose clients who are using tax avoidance schemes.  A report on this from the BBC news website can be found here.  More information on this consultation can be found here.  It is though still surprising that the UK Treasury has taken so long to even consider measures such as this.

It is always worth putting figures in context.  A new study for the lobbying group Tax Justice Network claims that wealthy individuals worldwide are holding at least $21 trillion in bank accounts in low-tax jurisdictions.  This dwarfs the £2bn figure mentioned above.  A report on this from the STEP Journal can be found here.

Now to the Scottish Government’s consultation on its proposed Land and Buildings Transaction Tax.  The consultation can be found here.  The Land and Buildings Transaction Tax will replace the current UK Stamp Duty Land Tax from April 2015.  This is important as it is effectively the beginning of a Scottish tax system.  The consultation is also of a standard that we will now expect.   Previous papers on corporation tax and excise duty, although not consultations, were simply not good enough.  Lessons clearly have been learned.  The consultation ends on 30 August 2012.

Now to the North Sea.  George Osborne has pledged £500m in tax breaks for companies developing the Cygnus gas field in the North Sea.  In addition two Chinese firms announced major acquisitions worth over £10bn in North Sea oil firms.  More on these stories can be found on BBC news website here and the Press & Journal here.  It seems that there is a great deal of life left in the North Sea and not just in Scottish waters.

One of the most important art objects ever donated to Scotland’s national collection in lieu of inheritance tax has gone on display. The Hamilton-Rothschild Tazza, a Byzantine sardonyx bowl mounted on a 16th-century gold stand, came from the estate of Edmund de Rothschild, who died in 2009, under the “Acceptance in Lieu scheme”.  A report on this from the STV website can be found here.

Now to an issue I have blogged about before.  An investigation for the Sunday Herald has shown that due to the charitable status of fee-paying schools in Scotland, while local authority schools have to pay full non-domestic rates, because many fee-paying schools are charities they receive an 80 per cent discount on their rates.  The investigation suggests the discount has saved private schools in the six local authority areas investigated £10m over three years. An article on this issue from the Sunday Herald article can be found here.

This issue shows how complicated devolution can be.  Non-domestic rates and charitable status are devolved matters.  Tax relief for charities is a reserved matter even under the provisions of the 2012 Scotland Act. 

Interestingly in the same week Stephen Twigg, Shadow UK Education Secretary, has said that Labour may remove the charitable status of some private schools.  Twigg warned that a UK Labour Government could enact legislation so that private schools not serving the community would lose their charitable status.

The UK Government has finally confirmed that fuel duty, air passenger duty and road tax are not environmental taxes.  This means that they are “revenue raisers” pure and simple.  The UK Treasury now defines an environmental tax as a charge which is explicitly linked to Westminster’s environmental aims, aimed at promoting behaviour change and is structured so that people pay more based on the potential damage caused to the environment.  An article on this from Holyrood can be found here.

I think I will finish with China and its attempt to attract more foreign investment.  China has slashed from 10% to 5% the withholding taxes it levies on profits repatriated by foreign companies, and on dividends paid to foreign shareholders of Chinese-quoted shares. The concessions apply only to companies based in double tax treaty partner countries, excluding the US.  A FT China article on this can be found here.

Have a good weekend.

The Scottish Government consultation can be found here.  The consultation paper seeks views on the Scottish Government’s proposals for a Land and Buildings Transaction Tax for Scotland to replace the current UK Stamp Duty Land Tax from April 2015.

This is important as it is effectively the beginning of a Scottish tax system.  

The consultation is also of a standard that we will now expect.   Previsous papers on corporation tax and excise duty, although not consultations, were simply not good enough.  Lessons clearly have been learned. 

The consultation ends on 30 August 2012.