If you are interested in subscribing to ‘Private Client Scotland’ please email me at: james@legalknowledgescotland.com

Private Client Scotland will review the latest cases, provide updates on the latest consultations, legislation and official publications and also includes articles, editorials and news items.

A preview bulletin will be published in November.

If you are interested in subscribing to ‘Private Client Scotland’ please email me at: james@legalknowledgescotland.com

Private Client Scotland will review the latest cases, provide updates on the latest consultations, legislation and official publications and include articles, editorials and news items.

A preview bulletin will be published in November.

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:

.

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.

Submission by James Aitken of Legal Knowledge Scotland

I refer to your requests for submissions.

By way of background I was involved in previous ‘fiscal powers’ submissions to the Calman Commission on behalf of the Law Society of Scotland and Reform Scotland and I am also one of the authors of Reform Scotland’s ‘devo plus’ proposal.

I am a partner in and a co-founder of Legal Knowledge Scotland.  Legal Knowledge Scotland is a provider of legal knowledge in various forms.  I am a solicitor who has practised in Scotland, England & Wales and Illinois.  I am also the immediate past Convener of the Scottish Borders Chamber of Commerce.

I would like to start with a comment.  It is not clear if your remit is to recommend the devolving of powers that when taken together would be considered to be what has been termed ‘devo max’.  It is generally accepted that ‘Devo max’ effectively means the devolving of all tax and welfare powers to the Scottish Parliament.  Alternatively you may consider your remit to be to simply recommend a few additional powers along the lines of those already proposed by the ‘NO’ parties.

The reason for the lack of clarity is of course the failure to use clear language by those advocating this position in the event of a ‘NO’ vote.  That lack of clarity I suspect was intentional.

In any event, I would argue that your remit is to recommend the devolving of substantial and extensive powers to the Scottish Parliament by May 2016.

The timetable for the devolving of these recommended powers will I suspect also be the cause of some debate.  The date of May 2016 is though quite clear when you consider the ‘timetable’ outlined by former UK Prime Minister Gordon Brown and the claim that these powers would be in place before the powers that would have accrued under independence.

To begin.  There are over 25 UK taxes, charges and duties and presently the Scottish Parliament only has control of 2 minor taxes and partial control of income tax.  This increases to 4 minor taxes and slightly more control of income tax when the Scotland Act 2012 is fully implemented.  This means there is huge scope for devolving substantial new tax powers to the Scottish Parliament.

The major taxes are more problematic both in political terms and complexity and I suspect will be only considered by you if are seriously looking at devolving powers that are akin to ‘devo max’.  The major taxes being income tax, National Insurance and North Sea revenue.  Control of VAT cannot be devolved to the Scottish Parliament.

I will therefore concentrate on what I term the ‘minor taxes’.

Devolving control of the so called minor taxes is a relatively straightforward matter as has been shown by the devolving of control of stamp duty land tax and landfill tax under the Scotland Act 2012.  The creation of Revenue Scotland also means that the Scottish Parliament will soon have its own tax authority to administer newly devolved taxes.

There are numerous advantages associated with devolving the undernoted minor taxes and associated areas of law.

This would this quickly give the Scottish Parliament control of a much broader range of taxes.  Approximately 20 taxes.  This is important as taxes cannot be looked at in isolation if you are trying to develop policy.  For example SDLT and capital gains tax or inheritance tax and income tax and capital gains tax.

That is one of the main reasons for devolving these taxes.  The fact that they are so closely associated with matters already devolved to the Scottish Parliament.  The devolving of these taxes would give the Scottish Parliament the opportunity to develop policy much more effectively.

In addition this would also increase substantially the number of economic levers available to the Scottish Government and the Scottish Parliament and greatly increase the amount of revenue it is responsible for raising.  The increase wold be approximately £6bn.

Some examples:

• Property law is devolved but SDLT (not until 2015), capital gains tax and inheritance tax are not.  Devolve control of capital gains tax, inheritance tax and the Crown Estate.
• Succession law is devolved but inheritance tax and capital gains tax are not.  Devolve control of inheritance tax and capital gains tax.
• Environmental law is devolved but not all the environmental taxes are.  Devolve control of climate change levy, air passenger duty and aggregates levy. 
• Health is devolved but alcohol and tobacco duties are not.  Devolve control of all alcohol and tobacco duties once any European Union issues are resolved.
• Transport is devolved but transport related taxes are not. Devolve control of fuel duty and vehicle excise duty.  

If you are indeed serious about devolving new major economic levers to the Scottish Parliament you will also have noted that companies are registered separately in Scotland but company law, employment and discrimination law, corporation tax, stamp duty on shares and SDRT are all reserved to Westminster.  Control of each of these areas of law and taxes should be devolved to the Scottish Parliament plus control of insurance premium tax and betting and gaming duties.

If you recommend that major welfare powers are devolved to the Scottish Parliament then control of National Insurance should also be devolved to the Scottish Parliament.  Devolve control of National Insurance to the Scottish Parliament.

If you recommend devolving control of broadcasting to the Scottish Parliament then control of the licence fee should also be devolved to the Scottish Parliament.   Devolve control of the licence fee to the Scottish Parliament.

Finally on tax simplification.  If you are going to recommend a tax for devolving, you should recommend that it is devolved in its entirety.   The main reason is that devolving partial control simply adds further complication to an already overly complicated tax system.  A tax with “two masters” poses obvious potential problems. A good example is the never ending tinkering with how much control the Scottish Parliament should have over income tax.  Also the underlying law, for example which reliefs apply may be just as important an economic lever as the headline rates.  Please also note that income tax is not just a personal tax but is a business and succession tax.  If you recommend that income tax should be devolved to the Scottish Parliament devolve all aspects of it including all underlying law.

Also on tax simplification.  OSCR should decide whether a Scottish registered charity is entitled to the associated tax advantages that comes from being registered as a charity and not HMRC.  The present system simply adds a layer of bureaucracy.  Devolve the responsibility for deciding the favourable tax status of Scottish registered charities to OSCR.

Lastly on tax simplification.  As with SDLT, the devolving of inheritance tax would simplify matters for the whole of the UK due to the complications that arise from having different laws of succession in the UK but a single inheritance tax.  This particularly applies to the required tax forms and guidance.

Please feel free to contact me further if you require further information on this submission.

A legacy left to a charitable trust by a Jersey resident testatrix has been denied UK inheritance tax relief.  The England & Wales High Court held that the Inheritance Tax Act 1984 contains an implied requirement that a qualifying charitable trust must be governed by the law of some part of the UK.

The full case report can be found here.

The First-tier Tribunal has held that the executors of a deceased individual who had incurred capital losses during his lifetime were able to claim relief for those losses against income and capital gains that had arisen before his death.

The full case report can be found here. 

Case from the Court of Appeal for England and Wales concerning a sale of freehold property in the West Midlands. The central issue for the court was whether VAT was payable on the purchase price.

The Purchase Price was defined in the contract as being £130k (no mention was made of VAT in the definition). However, the contract also incorporated the Standard Conditions of Sale[1] (4^th Edition) except where they were in conflict with the express terms of the contract.

Clause 1.4 of the Standard Conditions provides:

“1.4.1   An obligation to pay money includes an obligation to pay any value added tax chargeable in respect of that payment.

1.4.2     All sums made payable by the contract are exclusive of value added tax.”

Contracts were exchanged and the transaction completed in August 2006. CLP, the seller, opted to tax and became liable to pay VAT on the transaction. HMRC raised a notice of assessment in late 2007. In March 2008 CLP’s solicitors wrote to the purchasers’ solicitors indicating that the purchasers were liable to pay the VAT due (£22,750) to CLP. The purchasers failed to pay and CLP raised proceedings against them.

The court noted that the only reasonable interpretation of clause 1.4 was that the purchasers would have liability for any VAT. Also, previous case law provided powerful support for CLP’s argument that the purchase price of £130k was exclusive of VAT and that the purchasers were liable for any VAT due on the transaction.

However, the analysis did not end with the ascertainment of the meaning of clause 1.4; the contract had to be interpreted as a whole in the light of all the circumstances of the parties’ relationship and the relevant facts surrounding the transaction known to them. In that regard the following points were relevant.

It was never suggested that CLP ever communicated to the purchasers that it had exercised the option to tax.

1. The purchasers were individuals and, whilst the property was commercial, there had never been any suggestion that they were aware or had any reason to suppose that the transaction might be subject to a VAT charge.
2. The purchase price for the property had been agreed in principle a considerable time before completion and had been paid over by the purchasers to CLP by, at the latest, 2005. There was never any suggestion that VAT might be payable, still less that the purchasers would be liable for it. To the contrary, a letter from CLP’s solicitors in March 2006 contained an express acknowledgement that CLP had received “all of the sale monies of £130,000 on this matter, subject to contract”.
3. The standard requisitions had asked for details of the exact amount payable on completion and had elicited the response: “Balance of purchase monies”. No hint was given that VAT was or might be payable.
4. The contract provided that the “Purchase price” was £130k. It contained no indication that this price was exclusive of VAT. Indeed it was clear that this and no other sum was due upon completion because the contract included a table in which details of any “Other payments/ allowances” could have been (but were not) included. Moreover, and importantly, the contract provided that where there was any conflict between the express terms of the contract and the Standard Conditions, the express terms of the contract would prevail.

Taking all these matters into consideration the Court took the view that a reasonable person would have understood the parties to have intended that nothing was or could become payable by the purchasers over and above the specified purchase price of £130k.

Notably, in the particular circumstances of the case, the court found that it was not possible to interpret “Purchase price” as the price exclusive of VAT. As such, it considered that a reasonable person would consider that the express terms of the contract were not reconcilable with clause 1.4 of the Standard Conditions. In those circumstances, the court held that the express terms of the contract had to prevail.

The full judgement is available from BAILII here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

One of the major weaknesses of the ‘NO’ campaign is its failure to come up with a credible plan for devolving substantial new powers to the Scottish Parliament.  The talk is of “guaranteed new powers” but not one power is ever named nor when it might be devolved.

In response to the criticism they have received on this issue the ‘NO’ parties have this week come up with a ‘”pledge”.

There are a number of phrases in the “pledge” which should worry those who are considering voting ‘NO’ but who want substantial new powers for the Scottish Parliament.

For a start the word “substantial” is never used.  That in itself is telling when you consider how few tax and welfare powers the ‘NO’ parties are even considering for devolving in their latest reports.  Take tax powers.  There are approximately 25 taxes, charges and duties in the UK. The ”NO’ parties are at best proposing that the Scottish Parliament should have more responsibility, but not complete control, of income tax, possible control of another 1 or 2 minor taxes and partial responsibility for 1 or 2 others and a few welfare powers.

To put this into context.  Even after all of the provisions of the Scotland Act 2012 are implemented the Scottish Parliament will only have control of 4 minor taxes, partial responsibility of income tax and almost no welfare powers.

And remember these are just proposals.

Let’s not forget what happened when the ‘NO’ parties last made a huge fuss of looking at this matter.  The ‘pledge’ does actually mention the Calman Commission.  What is does not mention is that not all of Calman’s recommendations were implemented in the Scotland Act 2012.   Only three of the six tax recommendations made it to the Scotland Act 2012.

What is also often forgotten is how few welfare powers Calman recommended for devolving and that it also argued for some powers to be re-reserved.  The UK Government also refused requests by the Scottish Government to add further powers to the Scotland Act 2012. The requests related to corporation tax, excise duties and the Crown Estate.

Then there is the phrase: “the pooling and sharing of resources”.  This and other similar phrases such as “coordinated across the whole of the UK” are used by those arguing against the devolving of substantial tax and welfare powers to the Scottish Parliament. Expect to see comments such as these from a UK Government spokesman if there is a ‘NO’ vote.    

“There are certain levels of autonomy that are inconsistent with the UK. A unified tax and benefit system is at the heart of a united country. If you start dismantling the tax and benefit system then that is inconsistent with a single country.”

Lastly the phrase “as swiftly as possible”.  You can imagine the priority Westminster will put to this issue in the event of a ‘NO’ vote.

More powers, possibly, substantial powers, not a chance.

The First-tier tax Tribunal in Edinburgh has ruled ‘snowballs’ should be classed as cakes and therefore be zero-rated for VAT.

This is from the decision:

“A snowball looks like a cake. It is not out of place on a plate full of cakes. A snowball has the mouth feel of a cake. Most people would want to enjoy a beverage of some sort whilst consuming it. It would often be eaten in a similar way to cakes; for example to celebrate a birthday in an office. We are wholly agreed that a snowball is a confection to be savoured but not whilst walking around or, for example, in the street. Most people would prefer to be sitting when eating a snowball and possibly, or preferably, depending on background, age, sex etc with a plate, a napkin or a piece of paper or even just a bare table so that the pieces of coconut which fly off do not create a great deal of mess. Although by no means everyone considers a snowball to be a cake we find that these facts, in particular, mean that a snowball has sufficient characteristics to be characterised as a cake.”

The full decision can be found here.

“Purpose of the Brief

This Brief explains a number of changes relating to the transfer of a business as a going concern (TOGC):

• a change in HM Revenue & Customs’ (HMRC’s) policy on whether the surrender of a property lease can be a VAT-free TOGC
• to clarify the scope of certain aspects of the policy change announced in RC Brief 30/12
• to explain a change in policy concerning TOGCs of new residential and relevant charitable developments.”

“Scotland

For the purposes of this Brief all references to ‘surrender’ of a lease include the renunciation of a lease in Scotland, all references to ‘assignment’ of a lease include the assignation of a lease in Scotland and all references to a ‘reversion’ retained by a transferor include the heritable title retained by the landlord in Scotland.”

The full “Brief” can be found here.