Land and Buildings Transaction Tax - property investment funds: consultation

Introduction

Purpose

1. As part of the 2025-26 Scottish Budget, the Scottish Government committed to bring forward draft legislation in respect of the interaction between Co-Ownership Authorised Contractual Schemes (CoACS) and Land and Buildings Transaction Tax (LBTT).

2. Reflecting that commitment, this consultation seeks views on three specific issues focussed on the interaction between investment and devolved tax legislation.

3. This commitment was underlined in the 2025-26 Programme for Government. The PfG also set out this Scottish Government’s ambitions for attracting private capital investment to Scotland, focused on priority sectors including housing. It detailed a range of actions through which the Government is seeking to understand investor sentiment and create the conditions for increasing private investment in essential infrastructure, including the commitment to implementing the recommendations of the Housing Investment Taskforce, which is aimed at unlocking new investment opportunities across all tenures.

4. Part 1 is the core focus of this consultation, setting out draft legislation which seeks to exempt the exchange of participant rights within a CoACS where Scottish property is held as an underlying asset of the scheme. This consultation seeks views on the draft legislation to ensure it will work as intended.

5. Part 2 of the consultation seeks views on the Reserved Investor Fund (RIF) Framework, associated Stamp Duty Land Tax (SDLT) regime, and the case for introducing a similar regime under LBTT.

6. Part 3 of the consultation seeks views on the need for LBTT seeding relief for Property Authorised Investment Funds (PAIFs), CoACS and RIFs.

7. Part 4 concerns potential tax avoidance issues relating to Parts 1 to 3.

Previous Consultations

8. In a May 2018 consultation the Scottish Government explored potential tax exemptions for Co-ownership Authorised Contractual Schemes and Property Authorised Investment Funds. The consultation focussed on the prospect of introducing a ‘unit transfer’ relief for CoACS and seeding relief for both PAIFs and CoACS.

9. In December 2018, the Scottish Government announced its’ intention to bring forward draft legislation on both reliefs. However, due to the impact of COVID-19 and uncertainty presented by withdrawal from the EU, this legislation was not brought forward as planned. The 2021-22 Scottish Budget set out that these matters would be for the next Scottish Parliament to consider.

Key Definitions

Co-ownership Authorised Contractual Schemes

10. Co-ownership authorised contractual schemes (CoACS) are UK-authorised, contract-based collective investment vehicles, primarily used for pooling property assets.

11. CoACS are authorised by the Financial Conduct Authority and regulated as an Alternative Investment Fund.

12. The schemes are transparent for tax purposes, with investors being liable to tax on income and gains arising in the scheme in proportion to their unit holdings. There are, however, a number of reserved tax reliefs available to the schemes, including the following Stamp Duty Land Tax (SDLT) reliefs:

(i) Seeding Relief – 100% relief on the initial ‘seeding’ of existing property into the scheme subject to certain conditions being met.

(ii) Unit transfers – an exemption from SDLT arising to the underlying property assets of the scheme on the exchange or transfer of units within the scheme. Broadly, this is achieved by treating the scheme as a company and units as shares for SDLT purposes.

13. A similar unit transfer exemption is available under Land Transaction Tax (LTT) arrangements in Wales.

Reserved Investor Funds

14. A Reserved Investor Fund (RIF), is a newly established contractual investment vehicle designed to offering a flexible alternative to existing authorised contractual schemes, for use exclusively by professional and institutional investors.

15. Although unauthorised by the FCA, a RIF must mirror key regulatory requirements of authorised contractual schemes (e.g. governance, depositary oversight and investor-eligibility rules).

16. The SDLT treatment of RIFs broadly mirrors that in place for CoACS.

Property Authorised Investment Funds

17. This consultation discusses property authorised investment funds (PAIFs) in the context of seeding relief.

18. PAIFs are UK-domiciled, open-ended investment companies (OEICs) that invest predominantly in UK land and property.

19. PAIFs were designed to ensure that investors are taxed on rental income from the PAIF in the same way as if they had invested directly in the property themselves.

20. This benefits tax-exempt investors, such as charities, pension funds, life companies and ISA investors, who would receive property rental income from the older Authorised Unit Trusts (AUTs) net of income tax, which they were not able to reclaim. Tax-exempt investors in a PAIF for example, do not bear any tax charge on the rental income which they receive from the fund.