LBTT or SDLT – a scrabble for tax?

Back in the 1980s, when industrial building allowances were big enough to engage the attention of big ticket finance lessors, there were occasions when Michael Heseltine, then Environment Secretary, gently persuaded them to spend money in Scotland. So we dutifully wrote the finance leasing documents under English law and invited our Scots law colleagues to “put a kilt on them”, heading northwards ourselves just in time to hear the champagne corks popping when the deals were done.

Times are different now. When the Scots were given the autonomy to invent their own version of SDLT, they called it, rather snappily, “Land and Buildings Transaction Tax”. It comes into force on 1 April. After many months keeping us on tenterhooks, the Scottish Government announced the new and much more expensive LBTT rates on October 9 2014; thereby giving everyone paying £324,000 or more some six months in which to benefit from the current, much cheaper, SDLT regime.

As was to be expected, a huge amount of what the Treasury calls “forestalling” has gone on and the Scottish Government faces a severe loss of revenue. All the SDLT raised before 1 April goes to the UK Treasury, not to the Scottish Government. In response, ten days ago, Mr. Swinney, the Scottish Deputy First Minister, announced lower LBTT rates in an attempt to persuade patriotic Scottish buyers to postpone their acquisitions until he, and not the “Auld Enemy”, can benefit from their tax liabilities.

Also on 9 October, the Scots announced, very sensibly, that they could manage perfectly well, thank you very much, without the pernicious SDLT slab system. We all thought: “Good one, Mr. Swinney;” and wondered how long it would take the Sassenachs to catch up with this fine example of Scottish Enlightenment.

The answer was… less than two months. The unlamented slab system bit the dust in the whole of the UK for residential property on 4 December. (But only a bit of it bit the dust, mind, it still applies to mixed and non-residential property.)  Moreover, to add insult to the Scots’ injury over the loss of tax revenue, Mr. Osborne indulged in his own give-away by setting new lower SDLT rates for homes costing less than £937,000, making many homes south of the Border more competitive.

Was the Deputy First Minister pleased at getting the sincerest form of flattery from Mr. Osborne? Was he delighted that Mr. Osborne had, at a stroke, reduced what the UK Treasury was gaining at the expense of the Scots Government?

Apparently not. It seems the lost tax revenue is not Mr. Swinney’s fault for failing to foresee Scottish buyers’ “behavioural response” (his words); it was Mr. Osborne’s, for cutting the UK Treasury’s windfall!

Not too many champagne corks popping in the Deputy First Minister’s office just now, one suspects.