In 2020 ICAS called for a tax disadvantage affecting Scottish partnerships to be removed, so we were pleased to see the recent government announcement that the relevant legislation will be amended.
What’s the problem?
The UK capital gains tax regime 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 the relief, 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’.
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 this context.
ICAS highlighted in 2020 that the current wording of the legislation is flawed and called for it to be amended to remove the disadvantageous treatment of Scottish partnerships. It appeared that when it was drafted no consideration was given to Scottish law. This, combined with HMRC’s view that the Saltoun principle cannot be applied in these cases, causes practical problems, additional costs and unfairness for Scottish partnerships.
What will change?
The government 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 soon as possible.