Tax Day announcement - removing a tax disadvantage for Scottish Partnerships
By Susan Cattell, Head of Tax Technical Policy
3 December 2021
ICAS made a Budget representation in 2020 calling for an amendment to the legislation relating to a capital gains tax relief, to remove a disadvantage affecting Scottish partnerships. We welcome the announcement, in the command paper issued on 30 November 2021, that the legislation will be amended.
What is the problem?
S248A TCGA 1992 (previously ESC D26) allows a roll-over style relief for CGT where joint owners of land exchange their interests so that each owner is left owning one or more parcels of land individually. For the exchange of joint interests to apply, the land must initially be jointly held.
A problem arose when HMRC rejected a non-statutory clearance application relating to the availability of relief under s248A, where the land was held in a Scottish partnership. Clearance was refused on the basis that a Scottish partnership is a legal person and therefore the land was not ‘held jointly’ under the conditions of s248A.
This was unexpected in view of the principle (derived from the case of Lord Saltoun v Her Majesty’s Advocate-General for Scotland) that the position of Scottish taxpayers under tax legislation applying to the whole of the UK should not be prejudiced by differences between Scottish and English law. However, ICAS correspondence with HMRC established that HMRC did not believe that the principle could be applied in the context of s248A.
ICAS representation
ICAS submitted a Budget representation in January 2020 highlighting that the current wording of s248A is flawed. It appeared that when the legislation was drafted no consideration was given to Scottish law. This, combined with HMRC’s view that the Saltoun principle cannot be applied in s248A cases, causes practical problems, additional costs and unfairness.
Scottish partnerships must currently try to work round the flawed legislation to obtain the relief they should be entitled to under s248A. We assumed that there was no policy intention to disadvantage Scottish taxpayers and to treat Scottish partnerships less favourably than English ones.
The representation called for s248A to be amended to remove the disadvantageous treatment of Scottish partnerships.
Command paper – 30 November 2021
Paragraph 3.17 of the command paper issued on 30 November 2021 states that the legislation will be amended:
“The government will expand the scope of Capital Gains Tax roll-over relief to include Limited Liability Partnerships and Scottish partnerships. These partnerships are currently unable to claim relief on an exchange of interests in land held jointly by their members/partners, in contrast to English partnerships. This was not the intention of the relevant legislation (The Taxation of Chargeable Gains Act 1992) and the government will therefore amend it.”
We welcome this announcement and hope that the amendment will be made as quickly as possible.
Let us know your views
ICAS responds to many tax calls for evidence and consultations, as well as producing tax policy papers and reports. We welcome Members’ views to inform our work – please email tax@icas.com to share your insights and feedback.