Caroline Colliston, member of our Tax Law Sub-Committee and LBTT working group, summarises the Scottish Government’s spending and tax plans for 2018/19.

Scottish Finance Secretary Derek Mackay has set out the Scottish Government’s plans for tax and spending for the year ahead at Holyrood. The Scottish budget covers a variety of matters, including the devolved taxes such as income tax, land and buildings transaction tax (LBTT), non-domestic rates and Scottish landfill tax.

However, none of the announced measures are guaranteed, and to pass the budget the government will be looking for support from the other parties. A final vote on the budget is expected to take place in February 2019. In the meantime, the government has reserved their position to revisit the terms of this budget in the event of a no-deal Brexit.

So, what was announced?
  • A reduction in the lower rate of non-residential LBTT from 3% to 1%, an increase in the upper rate from 4.5% to 5%, and a reduction in the starting threshold of the upper rate from £350,000 to £250,000. Taken together, the government claims that non-residential LBTT rates and bands are the most competitive in the UK for all non-residential transactions.
  • An increase in the LBTT additional dwelling supplement from 3% to 4%.
  • The introduction of two new LBTT reliefs over the course of 2019: a relief for the ‘seeding’ (initial transfer) of properties into a Property Authorised Investment Fund (PAIF) or Co-owned Authorised Contractual Scheme (CoACS); and a relief for when units in CoACS are exchanged.

Despite both reliefs being present in the Stamp Duty Land Tax (SDLT) legislation in some guise or another, it has taken much lobbying to convince the government that these measures will encourage investment in Scotland and provide a level playing field across the UK.

In addition, the following was announced: 
  • Income tax threshold changes, but no introduction of the £50,000 higher rate threshold to benefit taxpayers in the rest of the UK as a result of the autumn UK budget statement. This has given rise to opposition complaints that middle management public sector workers, such as senior nurses and police officers, will be some of the worst affected by these changes.
  • The out-of-town levy, giving councils the ability to charge higher rates for out-of-town businesses, will not be introduced. This decision has been welcomed by the Scottish Chamber of Commerce and CBI Scotland among others, but many small businesses were keen that this was backed to regenerate the high street.
  • Economic growth in Scotland has been revised upwards and is forecast higher than the UK as a whole.  There will also be a continued focus on the delivery of Fair Work and inclusive growth.
  • An increase in capital investment by £1.56bn by the end of the next parliament. This will include: £50m capital fund to support town centres diversity; and more than more than £180 million towards city and region deals.
  • Providing initial funding of £130m to support the establishment of the Scottish National Investment Bank.
  • Doubling Scottish Development International’s presence in Europe and a £5m investment this year as part of a three year, £20 million plan to support more companies to export.
  • Support for women returners and parents in very low-income work.
  • No change to the total amount of the legal aid budget. We are pleased to see the government’s commitment to a 3% increase across all legal aid fees.
And what does this mean for Scottish solicitors?

The reforms and changes announced in relation to LBTT and ADS will be closely monitored and scrutinised by our Tax Law Sub-Committee and LBTT working group. We will continue to press for consistency and clarity in the interpretation of the LBTT and ADS legislation by Revenue Scotland.  In addition, we will continue to lobby to ensure that the distinction between what is regarded as 'residential' and 'non-residential' property for the purposes of the LBTT legislation is clear and transparent for practitioners and taxpayers alike.

The new measures indicate that there will continue to be some ‘ironing out’ of anomalies and complexities arising from the introduction of both LBTT and ADS. 

We look forward to continuing to work with government and Revenue Scotland as the devolved tax regime develops, to highlight areas where the law does not achieve its underlying purpose or does not fit with commercial reality. We shall await the proposed draft legislation and consultations and if any members would like to discuss the proposed changes then please get in touch with our Policy team at

Caroline Colliston is a Director at DWF and is an experienced commercial tax solicitor and chartered tax adviser. Further information on the work of our Tax Law Sub-Committee can be found here.

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