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I was asked this week to comment on some of the initial tax related issues that the Scottish Parliament might have to consider if Scotland votes ‘YES’.

The first comment I made was that the Scottish Parliament should pretty much enact the UK tax system on independence.  The Scottish Parliament should then take its time in deciding what to keep and what to change.  That said, there are a number of matters it might have to look at early on.

Let’s start with VAT.  Only if Scotland becomes independent will it have control, or at least as much control as is possible, of VAT.  The Scottish Parliament could reduce the VAT rate on home repairs and renovations to 5%.  Something our building industry has long been arguing for.  The Scottish Parliament could also ensure that Police and Fire & Rescue Scotland can recover their VAT costs.  This is something the UK Treasury has so far resisted.

The Scottish Parliament could look again at what constitutes a charity in Scotland and with that which entities should receive the associated tax and other benefits.  “Private” or “independent” schools for example.  This is an issue that should not just be left to OSCR, the body that regulates charities in Scotland.

Then there is the debate surrounding a European Union “financial transaction tax”.  An independent Scotland will have to consider its position on this.  If a number of European countries decide to go ahead with this then the Scottish Parliament will have to decide if it wants to join them.  One option could be to agree to a FTT and at the same time abolish stamp duty on shares.

Now to environmental taxes.  The Scottish Parliament might want to consider introducing a carbon tax.  The debate in Australia shows how difficult this might be.   Independence does though mean tough decisions.

Then there is local taxation.  I am sure “Land Value Tax” supporters will be pressing their case even more strongly if Scotland votes ‘YES’.

Now to administration.  Lots of opportunities here for simplifying things. There is no need for Scotland to have a separate Companies House, Stamp Office and Registers of Scotland.  “One stop shops” for the services provided by these bodies is a minimum of what we could do.  We could even create “tax and benefits” centres throughout the country that are based in our local authority buildings.

Then there is “tax avoidance” and “tax evasion”.  The Scottish Parliament could consider publishing at least a summary of each tax return or legislate for published beneficial ownership registers.

Just a few thoughts.

Inner House case considering an appeal from the Outer House in which a residents group challenged decisions made by East Renfrewshire Council (1) to grant planning permission and (2) to confirm fulfilment of a planning condition relating to drainage, in respect of a proposed development at Ayr Road in Newton Mearns.

The residents group had applied for a protective costs order (which puts a cap on a party’s liability for the expenses of the court action.) Protective costs orders can be granted where the issues raised are of general public importance and where the applicant has no private interest in the outcome of the case. However, in the Outer House, Lord Tyre refused the application on the basis that the issue was one of local community interest rather than general public importance.

The Inner House refused the appeal. After noting that the residents group could fairly be characterised as an association of local residents whose primary objective was the safeguarding of their respective private interests, the court came to the conclusion that the issue was not one of general public importance:

“What is challenged, in the sense of being sought to be reduced, is a planning permission for a relatively modest development. Any increased risk of flooding is of importance to all the individuals who fear that their properties may be affected. In a sense it is true to say… that flooding is a matter of public concern and that in the event of an incident of flooding public services are engaged. None of that makes what is in issue here a matter of general public importance. The interests involved are predominantly local and predominantly private. There may be applications for judicial review where the issues raised are at once local and yet of general public interest. This is not such an application.”

The full judgement is available from Scottish Courts here.

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

The prices of all of our property styles have been reduced by 50% for the month of August. You can see our range of styles here.

The latest update from the Office of the Public Guardian (Scotland) on the current Powers of Attorney position can be found here.

The update includes the following:

“We are delighted that uptake of the electronic process for submitting powers of attorney is becoming increasingly popular. This system is easy to use and allows PoAs to be registered within a matter of days.  We would urge you, if you have not used the electronic format, to please give this active consideration. “

I was interested to see that OSCR, Scotland’s charity watchdog, has authorised Scotland’s 23,500 charities and voluntary organisations to take an active role in the independence debate if they wish.

One issue that is important to the charity sector is tax.  Charities for the most part do not pay tax.  Another important issue for the charity sector is administration and in particular when applying to become a charity.

It will be a surprise to many that just because a charity is registered with OSCR it is not automatically entitled to the various applicable tax reliefs.  A charity has to make a separate application to HMRC.

This causes two complications.  Charity law in Scotland differs from that of the rest of the UK.   For example Scotland’s list of “charitable purposes” is different. That is the first complication.

The second complication is that HMRC apply English and Welsh charity law principles.  This means that there is potentially less work for let’s say an English registered charity, as its original application to its Charity Commission was based on English and Welsh legal principles. A Scottish charity has to also ensure its application to HMRC meets English and Welsh charity law.

It this a huge issue? No.  Is it an issue that can cause problems?  Yes.  Was there a simple solution?  Of course there was.

The simple solution was if a charity is recognised by OSCR it should automatically be recognised by HMRC.  This was a matter I and others argued for before the Calman Commission.  Tax simplification is often talked about but rarely achieved.  This was an obvious opportunity.

How did I get on I hear you ask?  Not only did Calman not agree to this relatively simple measure but recommended that that some parts of Scottish charity law should be re-reserved.

The Scotland Act 2012 did not in fact re-reserve this area of responsibility in whole or even part.  I suspect that the main reason for this was how this would have looked at this particularly politically sensitive time.   The Scotland Act did in fact do nothing on this particular matter.

Possibly something for charities in Scotland to reflect on.

Outer House case in which the liquidators of Scottish Coal sought directions from the court in respect of several disused open cast mining sites owned by Scottish Coal.

The sites were subject to onerous statutory obligations aimed at controlling land use, protecting the environment, habitats and birds and ensuring public safety. The sites were also subject to obligations under planning legislation requiring restoration of the sites, the cost of which was estimated at £73m.

The liquidators sought directions as to whether they could abandon or disclaim:

1. the sites, thereby transferring ownership to the Crown; and
2. the statutory licences/permits authorising Scottish Coal to carry out its industrial activities (and imposing the obligations on Scottish Coal).

The Scottish Environment Protection Agency (SEPA) and Scottish Natural Heritage (SNH) were represented in court and argued that it is not possible for liquidator to do so as, under Scots law:

a)    there is no power to abandon the ownership of land; and
b)    ownerless land is an impossibility.

No authority could be found supporting the idea that an owner could abandon land in Scotland. However, after considering Roman Dutch law[1] and the German Civil Code[2], Lord Hodge found[3] that it may be possible for an owner to abandon land[4] and circumstances may arise when, on a disclaimer by the Crown, land becomes ownerless.

But, whilst the liquidators generally have power to disclaim property, where the company’s use of the land is governed by statutory permits, his ability to disclaim would depend upon the terms of the statutory provisions and the permits.

In this case the decision depended on whether the court took a wide interpretation (as argued for by SEPA and SNH) or a narrow interpretation (as argued for by the liquidators) of the relevant legislation[5]. Lord Hodge came to the conclusion that the Scotland Act 1998[6] required him to take a narrow interpretation leading to the conclusion that the liquidators could disclaim the sites and release themselves from the obligations.

The full judgement is available from Scottish Courts here.

(NB: see Inner House decision here)

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

I  have been asked a number of times recently to comment on a likely timescale for additional tax and fiscal powers if Scotland votes ‘NO’ in September 2014.

Estimating a likely timescale is not that difficult a task.  It may though be a pointless task if as is likely this issue is for all intents and purposes ignored by Westminster.

Recent delays to the devolving of additional fiscal powers to both Northern Ireland and Wales give an indication of the sense of priority these matters even now are given at Westminster. Add to this the background of the 2015 UK General Election and the debate surrounding the UK’s membership of the European Union.  This means that the likelihood of Westminster devoting anything more than a token amount of time and effort to yet another debate on which tax and fiscal powers to, or more realistically not to, devolve to the Scottish Parliament cannot be high.

The debate for additional powers is also not going to be all one way.  Those arguing for additional powers after a ‘NO’ vote will also have to counter those calling for powers to be removed from the Scottish Parliament or even that the Scottish Parliament be abolished.

That said, one recent example does gives us some idea of how long these things take.

• SNP win May 2007 Scottish General Election
• Calman Commission set up December 2007
• Interim report published December 2008
• Main report published June 2009
• 2010 UK General Election and change of government resulted in a review of the matter
• Scotland Act May 2012
• Powers to be devolved in April 2015 and 2016

So 8 or 9 years and that is where very few powers were being devolved and there was a large amount of consensus between the main UK parties.

8 or 9 years may though be unduly optimistic.  Calman was set up within six months of the SNP’s victory. Would something similar be set up so quickly in the event of a ‘NO’ vote given how close the next UK General Election was?  I suspect not.  That means any additional powers are not likely to be in the control of the Scottish Parliament for at least a decade.

Also worth remembering that three of the six tax powers recommended by Calman were omitted from the Scotland Act 2012.

Inner House case in which the Cairngorms Campaign and others applied to the court for reduction of a decision by the Cairngorm National Park Authority to adopt the Cairngorm’s National Park Local Plan. In particular they complained about the adoption of development policies in the Local Plan which made provision for developments at Nethy Bridge (40 dwelling houses and business units),  Carrbridge (up to 117 dwelling houses), An Camas Mòr  (1,500 dwelling houses) and Kingussie (300 dwelling houses).

In the Outer House Lord Glennie rejected the campaigner’s arguments finding that, in adopting the Local Plan, the Park Authority had neither acted unlawfully or illegally (in the Wednesbury sense – i.e. it had not reached a decision that no reasonable person in that position properly informed of the facts could have reached) nor had it failed to give adequate reasons for its decision, the reasons given for the decision being clear. In coming to his decision, Lord Glennie also rejected a number of more specific arguments made by the campaigners.

The campaigners argued that Lord Glennie had erred in law by failing to appreciate what was necessary in terms of the  “appropriate assessment” required  under  the Conservation (Natural Habitats etc) Regulations 1994 (implementing Habitats Directive 92/43/EEC) when assessing the implications of the Local Plan on the Park’s conservation objectives. They contended that a far more detailed assessment should have been made at the point the Local Plan was approved.

This argument was rejected by the Inner House which agreed with the decision of Lord Glennie. Although referred to as an appeal, it was appropriate to consider the campaigners’ action on judicial review grounds. Taking that approach, the Park Authority’s appropriate assessment could not be said to be one which no reasonable authority would have produced in the circumstances. It was, therefore, open to the Authority to adopt a Local Plan which relied on that assessment.

The full judgement is available from Scottish Courts here.

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

Outer House case concerning a Property Enquiry Certificate obtained by Manorgate from First Scottish which failed to reveal that the site for which the certificate was obtained was designated as being one of archaeological significance. It intended to demolish the existing buildings and erect new commercial premises. One of the new units was to be used as a retail branch for its flooring business. The other units were to be let to complementary traders. However, following purchase of the site, the designation led to Manorgate mothballing it after concluding that the intended development was uneconomic. Manorgate then sued First Scottish for damages in respect of (a) the lost capital value of the Site (b) site investigation costs; (c) trading losses; and (d) development losses.

First Scottish accepted that the Certificate should have referred to the archaeological designation and that they had been negligent in omitting it. However, amongst other things, they argued that (1) the omission had not caused Manorgate’s losses (2) that there had been contributory negligence on Manorgate’s part and (3) Manorgate’s losses were too remote to have been foreseeable by First Scottish.

Lord Woolman rejected the First Scottish defences and awarded damages (albeit the damages were reduced as some of the losses were not foreseeable).

Causation
Lord Woolman found that Manorgate had relied on the certificate and would have withdrawn from the missives for the purchase of the site if the certificate had been accurate.

Contributory negligence
First Scottish argued that Manorgate should have queried or double-checked the accuracy of the information in the certificate. Lord Woolman found that a surprising position for it to adopt noting that, if purchasers were obliged to carry out their own separate investigations, it would deprive Property Enquiry Certificate of any real utility.

Foreseeability
Whilst the diminution in value of the site, site investigation costs and loss of business profits (First Scottish knew the site was zoned for commercial use) were foreseeable, First Scottish could not have reasonably foreseen a sequence of events that led to the buildings being demolished. Nor could they have foreseen that the purchaser of the site would both seek to carry on business there and also sell the site and generate development profit and, as a result, no damages were awarded for development profit.

The full judgement is available from Scottish Courts here.

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

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