Land reform has been considered at Westminster as well as by the Scottish Government. This article looks at the recent Scottish Affairs Committee report, and the impact its proposals may have

Land reform has been placed at the centre of the Scottish Government’s legislative programme, Nicola Sturgeon having previously declared it “unfinished business” and committing her administration to radical plans for reform.

At Westminster, the Scottish Affairs Committee (SAC) has been conducting its own inquiry. Its final report was published on 26 March 2015, containing a modest number of conclusions and recommendations, chiefly concerned with the lack of reliable information on land values and the impact of tax reliefs.

Some of the main findings can be summarised as follows:

  • In order to allow informed debate about public policy on land and landownership, the SAC recommends that the Valuation Office Agency (VOA), the executive agency that provides valuations and property advice to the public sector, should resume publication of land price indices. The SAC considered it disappointing that, having identified problems with underpinning data, the VOA simply decided to cease publication rather than tackle the issues.
  • Concerned that parts of the tax system are distorting the market (for example, the effect on land prices due to demand from investors looking to buy land because of inheritance tax breaks) and undermining Government targets on increased community ownership, the SAC calls for an analysis to be undertaken of the impact of tax reliefs on land value.
  • So that its value for money and effectiveness can be properly evaluated, the SAC wants to see greater transparency surrounding the Conditional Exemption Tax Incentive Scheme (CETIS). The CETIS was established to protect the UK’s heritage assets. Transfers of listed assets are exempt from IHT and capital gains tax in order to protect them from being sold off to pay hefty tax bills. In exchange for the exemption, owners must agree to preserve and manage the land and allow public access. The SAC notes that information on how much tax revenue is foregone is not made public. It also notes that in the case of land, public access is already required by law. The SAC proposes that partial, rather than total, exemptions may in some cases be more appropriate, essentially proposing the introduction of graduated exemptions.
  • The SAC believes the case for the retention of agricultural property relief (APR) is not proven. APR provides relief from IHT on death and lifetime transfers. The SAC notes that APR seems intended to encourage productive use of farmland and to support continuity of farming businesses, but in evidence to the SAC, there appeared to be an admission from HMRC of a lack of oversight as to whether policy objectives were being met. Unclear about the extent to which APR is achieving the purpose for which it was created, the SAC urges a review of both the rationale for the availability of APR and the effects of its use.
  • As part of making complex ownership arrangements more transparent, the SAC recommends the creation of a publicly accessible register of people with beneficial interests in land through trusts, similar to the publicly available register of people with significant control of companies, taken forward by the Small Business, Enterprise and Employment Act 2015.
  • While generally pleased with the Scottish Government’s commitment to pursue the land reform agenda, the SAC expressed disappointment at the Government’s decision to rule out a review of the exemption from non-domestic rates benefiting agricultural land. Again, due to the lack of oversight and a failure to collect relevant data, the SAC considers the case for retaining the exemption is still to be proven.

Time to review advice?

The SAC’s concerns surrounding tax reliefs echo those already expressed by the National Audit Office in its November 2014 report on The Effective Management of Tax Reliefs. In that they represent a cost to the public due to the tax foregone, the SAC’s view is that tax reliefs should only be offered where there is clear justification.

Potentially, this signals a risk to available reliefs and the possibility that, at some point down the line, tax reliefs, such as CETIS and APR, might either be taken away or watered down.

Where there is an over-reliance on a limited number of tax reliefs, it may therefore be that clients should be encouraged to review tax planning measures. Some thought might also need to be given to succession and bringing forward plans to pass assets to the next generation sooner. For now, as is already being seen, greater scrutiny of claims for relief can be expected.

Scottish Government plans

In its concluding remarks, the SAC looks ahead, commenting on the Scottish Government’s consultation on The Future of Land Reform in Scotland. The consultation period closed on 10 February and an analysis of the responses is now keenly awaited. The Scottish Government’s consultation document put forward a number of proposals based on the recommendations of the Land Reform Review Group and the Government’s stated view that landownership and land use must be in the public interest.

Among other things, there are controversial proposals to give powers to the Scottish ministers to intervene in cases where either the scale of landholding or landowner conduct is deemed a barrier to sustainable development. There is also a proposed restriction on the types of legal entity permitted to own land in Scotland, and a commitment is also set out for developing a strategy to achieve one million acres in community ownership by 2020.

Proceed with care

Uncertainty remains about how land reform will be implemented and its effects. Ideology and theory seem now to have been the subject of long discussion.

It is expected (and certainly widely hoped) that the focus will now be on reform as a practical matter. Many of the SAC’s chief observations in its final report related to the need for reliable information and proper scrutiny. Before land reform is taken forward, there is a strong case for an evaluation to be carried out of the practical cost and effects of individual proposed measures to prevent the occurrence of negative unintended consequences.

Planned state intervention powers designed to overcome barriers to sustainable development risk being perceived as draconian, which could have the effect of putting up barriers to investment in Scotland. Restrictions on types of legal entity, whilst well intentioned, could result in landowners devising even more convoluted ownership arrangements. Arbitrary targets on community ownership risk placing such ownership above other types without proper, case by case, justification.

The findings of the SAC will largely be matters for the incoming UK Government to review, while at Holyrood, a draft Land Reform Bill is expected this parliamentary term. It will be interesting to see which measures the Scottish Government decides to take forward and how it proposes implementing them. The shared commitment of SNP and Labour to “radical” change clearly indicates that the “unfinished business” of land reform in Scotland should not remain thus for very much longer.

The Author
Ross Simpson, associate, Murray Beith Murray 
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