- Our Bullet Point Update for April 2013 touched on “taxes yet to come”. In particular, it mentioned that under the Scotland Act 2012, the Scottish Parliament would take over responsibility for “Stamp Duty Land Tax” – the current UK tax on “land transactions” (most commonly buying a flat or house).
- This “tax yet to some” is now here with the Revenue Scotland and Tax Powers Bill (referred to below as “the Bill”) being passed by the Scottish Parliament on 19th August.
- As one (of currently two) taxes “devolved” to the Scottish Parliament “Stamp Duty Land Tax” has been reformulated for Scotland and re-named the “Land and Buildings Transaction Tax”. Responsibility for its administration will be transferred to a new body called “Revenue Scotland”.
- This Note does not aim to set out how the “Land and Buildings Transaction Tax” (“LBTT”) will differ from Stamp Duty Land Tax (“SDLT”). It focuses more on the new Revenue Scotland body and its functions.
- Sections 2 and 3 of the Bill provide:
“There is established a body corporate to be known as Revenue Scotland.
In Gaelic, Revenue Scotland is to be known as Teachd-a-steach Alba…
Revenue Scotland’s general function is the collection and management of the devolved
Taxes [one of the (current) two being the new Land and Buildings Transaction Tax].”
- In the first instance, Revenue Scotland will focus on the administration of Land and Buildings Transaction Tax (LBTT) (and also the other devolved tax: Scottish Landfill Tax).
- The Bill not only provides for the establishment of Revenue Scotland but also for Scottish Tax Tribunals; puts in place a general tax anti-avoidance rule; and makes provision about the collection and management of devolved taxes. Royal Assent is expected to be granted in September 2014.
- Revenue Scotland’s website will be going live at the end of September 2014 and guidance on LBTT will be added in phases.
The Scottish Rate of Income Tax (“SRIT”)
- This is not another “devolved tax”. It is a new power conferred on the Scottish Parliament to affect the amount of income tax that Scottish taxpayers pay. In other words, the Scottish Parliament will not have power in relation to income tax generally for Scottish taxpayers: it will however have power to vary the rate at which Scottish Taxpayers have to pay the tax, and a proportion of the tax will go to fund spending by the Scottish Government.
- In particular, the SRIT is not dependent on the outcome of the referendum on independence: it will be introduced either way.
- While the Scotland Act 2012 gives the Scottish Parliament power to set SRIT, (expected to come into force in April 2016) it will be administered by HMRC (not Revenue Scotland) as part of UK Income Tax.
Council Tax and Non-Domestic Rates
- These are local taxes and there are no plans for Revenue Scotland to become responsible for local taxes. These are managed by Scottish local authorities.
General anti-avoidance rule
- In particular the Bill introduces a distinctively Scottish “general anti-avoidance rule” as follows:
“An arrangement (or series of arrangements) is a tax avoidance arrangement if, having regard to all the circumstances, it would be reasonable to conclude that obtaining a tax advantage is the main purpose, or one of the main purposes, of the arrangement.”
- It will be interesting to see how this provision functions. The December 2013 Policy Memorandum for the Bill had this to say (at para. 11) about this new power (emphasis added):
“The provisions in the Bill include measures to counteract tax avoidance through the introduction of a Scottish general anti-avoidance rule (GAAR). The purpose of the GAAR is to give Revenue Scotland the power to counteract tax advantages arising from tax avoidance arrangements that are artificial. The Scottish GAAR would enable Revenue Scotland to take counteraction in a wider range of circumstances than the existing UK GAAR (which deals with tax abuse rather than tax avoidance). This is a result of the criteria used in the Scottish GAAR to define what constitutes a tax avoidance arrangement that is artificial … Artificiality will be determined by reference to a set of tests set out in the Bill, including commercial substance.”
Note: This material is for information purposes only and does not constitute any form of advice or recommendation by us. You should not rely upon it in making any decisions or taking or refraining from taking any action. If you would like us to advise you on any of the matters covered in this material, please contact Neil Mackenzie: email@example.com