Taxing Scotland’s land – our most valuable asset

The Scottish Government’s commitment to land reform and its desire to create a more diverse pattern of land ownership in Scotland has been a key policy objective during its time in Government. Its current priorities for land reform were published in September 2021 and emphasised the Government’s desire to create a more diverse pattern of land ownership and tenure with a significantly higher proportion of land owned by the communities in Scotland that live and work there.

In 2020 the Scottish Government asked the Scottish Land Commission to advise on how the taxation of land could be used to help both with economic recovery from the pandemic and in achieving the Government’s land reform objectives. The Commission reported back in January making a number of key recommendations.

Using wealth productively

With over 50% of the UK’s wealth tied up in land and property, it forms only 10% of the total tax base and the Commission recognised that increasing the role of land in the tax system could help ensure that this wealth is used more productively.

The Commission noted however that the Scottish Government’s ability to use taxation to shape decisions on land ownership and land use is limited. Key taxes such as capital gains tax and inheritance tax are reserved to Westminster and in relation to income tax the Scottish Government has power only to change the tax bands and rates of tax.

What change is needed?

Reform to the underlying tax administration system was identified as a first step. The Commission proposed that all land in Scotland should be brought onto the valuation roll and that information on land ownership, value and use should be publicly available through the introduction of a cadastral map approach. This system is widely used across Europe and maps all land data.

Further to identifying tax as playing a key role in tackling vacant and derelict land and supporting the regeneration of town centres, the Commission considered a number of areas relevant to the rural landscape.

LBTT as a tool

Land and Buildings Transaction Tax (LBTT) is one of the taxes over which the Scottish Government has full control and was identified as a tool by which land ownership could be influenced. The introduction of some form of surcharge which could be applied to land holdings over a certain scale, operating on a similar principle to the Additional Dwelling Supplement, was suggested. The theory in principle is that applying additional tax to large scale land acquisitions could discourage land purchases which further concentrate land ownership.

The potential for environmental tax

The hot topic of climate change and achieving net zero was identified as an area where taxation may be required to ensure there is a balance between public and private benefit from future carbon values. Without any action, the Commission noted that there may be significant upward pressure on land prices and potential for substantial private windfall gains.

Agricultural land accessibility

Finally, the need to improve the availability of agricultural land to new entrants and developing businesses was discussed. Tax policy has typically restricted many tax reliefs to landowners who are active farmers and this has done little to support diversification of ownership. The use of reliefs and exemptions such as an income tax relief to support the letting of agricultural land was identified as a tool for achieving this. This is however a matter reserved to Westminster and as such would require engagement on a UK basis.

In summary the Scottish Land Commission make it clear that land is Scotland’s most valuable asset and that steps should be taken to increase the role that land value plays in taxation. The recent substantial increases in the price of Scottish land with natural capital potential such as forestry and land suitable for peatland restoration may require action to be taken sooner rather than later if the aim for balance between private and public benefit is to be achieved.

The Commission identifies that increasing the role that land value plays in taxation is a subject that is likely to attract passionate debate and that a national conversation is required to help build consensus on the options for taxing land and making the most of Scotland’s land. The Scottish Government has limited tax powers devolved to it and would need to engage on a UK basis to achieve the reforms identified.

You might also be interested in these articles:

• Vacant and derelict land in Scotland
• Have you opted to tax – What does that mean?
• Scottish income tax – where are we now?
• Autumn Budget 2021 at a glance

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