Major investors put off Scotland amid property ‘tax breaks’ call

Investment chiefs are being put off Scotland because the tax burden is heavier than elsewhere in the UK, industry leaders have warned.

The Scottish Government is now being urged to press ahead with tax breaks for major property investments like pension funds to bring the country in line with the regime south of the border and kickstart investment.

A consultation closed yesterday into “seeding relief ” that would exempt certain types of funds, known as Property Authorised Investment Funds (PAIFS) and Co-ownership Authorised Contractual Schemes (COACS) from Land and Buildings Transactions tax (LBTT). These funds are investment vehicles used by institutional investors to make it easier to encourage group investment in property, usually new commercial ventures like office blocks. The tax hit affects the transfer of properties from existing portfolios or into new ones.

Moira Kelly, chair of the CIOT Scottish Technical Committee, said the consultation was a “common sense” move that would improve the current LBTT scheme.

“This will provide greater simplicity and certainty for taxpayers,” she said.

“Mirroring the regime in the rest of the UK will also make it more likely that property investors will consider, including Scottish properties in their portfolios. With different and more commercially advantageous rules available elsewhere in the UK, investment managers are currently wary of investing in Scotland for fear of the additional tax charges their clients will face.” She added: “Introducing this relief in Scotland is a pragmatic move and one likely to incentivise the attractiveness of Scottish property as part of wider investment portfolios.”

The Tories have been calling for LBTT to be abolished since it was introduced in 2015, replacing stamp duty on residential properties. There are claims it has choked off demand at the top end of the housing market.

Tory finance spokesman Murdo Fraser said: “It is clear that this SNP policy is discouraging investment into Scotland and ‘seeding relief’ is a sensible first step to improve the efficiency of the system.

“But this doesn’t go far enough. The SNP must rethink this policy as a result of the predicted lower tax take and to make Scotland more competitive.”