Scottish govt U-turns on in-specie property tax rules

Revenue Scotland has U-turned on its decision to levy land business transaction tax (LBTT) on in-specie transfers, a change it first made in October 2016.

A technical note published on 28 December confirmed Revenue Scotland has reversed its position on LBTT on in-specie transfers, and that the change would apply retrospectively.

The note said the department will consider refunding tax from any individuals who have paid LBTT on the basis of the first change made in October 2016.

Prior to the U-turn, a transaction in which a self-invested personal pension (SIPP) or small self-administered scheme (SSAS) purchased property was subject to LBTT (Scotland’s version of stamp duty) where there was chargeable consideration.

In October 2016, Revenue Scotland clarified LBTT would be levied on in-specie transfers, unlike in the rest of the UK, where stamp duty is not charged.

‘Common sense outcome’

AJ Bell senior analyst Tom Selby said most providers have stopped processing in-specie property transfers in Scotland because of the potential tax charge associated with such a transfer.

“Revenue Scotland’s confirmation in October 2016 that LBTT would be charged on in-specie property transfers was always slightly perplexing and counter to HMRC’s position,” said Selby. “With tax charges on transfers potentially running into tens of thousands of pounds, the market north of the border had understandably ground to a halt.

“The threat of being hit with a huge tax bill risked seeing members trapped in schemes with high fees or poor administration.

“Revenue Scotland’s decision to reverse its position is welcome for advisers and clients, providing extra flexibility to transfer properties that are already held in a SIPP or SSAS,” he said.

“It also opens up the possibility of savers being repaid substantial sums where a charge has already been levied by the Revenue. For example, a commercial property worth £500,000 would have incurred an LBTT charge of £12,750 prior to the Revenue’s rethink.”

Meanwhile, Dentons Pensions Management director of technical services Martin Tilley added: “This is a common sense outcome which recognises that there is no change in the underlying beneficiary of the property value and which is now consistent with HMRC.

“It also means that SIPP members who were previously trapped in SIPPs who administration is poor or fees high are now able to transfer their SIPP and property assets without the worry of this financial disincentive to do so.

“This might open the gates for numerous clients in this position.”