In the third of our series of blogs on the Land Reform Consultation, we are considering the theme of transparency.
Transparency of land ownership is described as critical to the Scottish Government's (SG) land reform objectives. In the last decade, the SG has introduced measures to support its Land Rights and Responsibilities Statement (LRRS) principle of "improved transparency of information about land ownership and use and management of land which should be publicly available, clear and contain relevant detail". Those measures include accelerating completion of the Land Register and the introduction of the Register of Persons Holding a Controlled Interest in Land.
The Consultation sets out the SG's aim to further increase transparency. Stated by the SG to be published at a time of enhanced public interest in who owns land and who is in receipt of public funding, the Consultation reiterates the SG's commitment to (a) ensuring that inward investment in Scotland's land is conducted in a responsible manner and (b) transparency of land ownership so that the public can have a real understanding of who owns, controls and benefits from Scotland's land.
Under the heading of transparency, the Consultation proposes restrictions on who can:
- acquire large-scale landholdings in Scotland; and
- benefit from public funding from the SG for land-based activity for all land, regardless of land size.
In her foreword to the Consultation, Mairi McAllan, Minister for Environment and Land Reform, explains that the Consultation is asking:
"who can and should receive public subsidy and how we might restrict the purchase of land and provision of subsidy to only those registered in the UK and EU for tax purposes, and asking what test should be applied prior to the purchasing of large-scale land holdings".
To read our commentary on proposals relating to the acquisition of large-scale landholdings and the application of a public interest test, please refer to our blog on diversification of landownership.
Background to the Consultation proposals
Land Register Completion
In 2014, the SG set a10-year target for all land in Scotland to be registered in the Land Register "to bring a new level of transparency to land ownership in Scotland". Completion of the Land Register involves moving titles from the older Sasines Register to the publicly accessible digital map-based Land Register. As at July 2022, 45% of Scotland's land mass was still to be Land Registered, with the original target of full completion by December 2024 unlikely to be met.
Register of Persons Holding a Controlled Interest in Land (RCI)
The purpose of the RCI, which became operational in April 2022, is to improve transparency of property ownership, to make information publicly available where there is someone sitting behind the owner or tenant who controls and ultimately makes decisions about the management or use of land.
Register of Overseas Entities
In response to the events in Ukraine, the UK Parliament fast-tracked the implementation of the Economic Crime (Transparency and Enforcement) Act 2022. As well as dealing with sanctions and unexplained wealth orders, the Act introduced the Register of Overseas Entities to improve transparency of ownership of overseas entities holding certain UK property interests.
Previous restriction proposal
In 2014, the Land Reform Review Group recommended that any legal entity not registered in a member state if the European Union (EU) should not be able to register a title in the Land Register. This was to improve traceability and accountability in the public interest. Whilst SG included this recommendation in its 2015 Consultation on the Future of Land Reform in Scotland, it ultimately was not taken forward into the subsequent Land Reform (Scotland) Act 2016.
Transparency proposals contained in the Consultation:
Proposed restriction on who can acquire Large-Scale Landholdings
The SG is of the view that despite recent improvements, the increased inward investment in Scotland's land and natural capital, coupled with heightened public interest in the transparency of land ownership, merits a reconsideration of the issues associated with restricting the acquisition of land.
The proposed restrictions would apply to Large-Scale Landholdings (LSLs). The Consultation does not explore why the proposed restriction applies only to the acquisition of LSLs.
The proposed criteria for LSLs are:
- A fixed threshold of 3,000 hectares;
- Land that accounts for more than a fixed percentage of a data zone or local authority ward designated as an Accessible Rural Area or Remote Rural Area; or
- Land that accounts for more than a specific minimum proportion of an island which is permanently inhabited.
At this stage, it is not clear whether a "landholding" refers to one geographical block of land, or the amalgamation of any areas of land to be acquired by one legal person.
Part 11 of the Consultation asks whether consultees agree or disagree with the proposal to explore:
- who should be able to acquire LSL in Scotland; and
- the possibility of introducing a requirement that those seeking to acquire LSL in Scotland need to be registered in an EU member state or in the UK for tax purposes.
The Consultation states that the proposal to introduce a requirement that anyone seeking to acquire an LSL would need to be registered in an EU member state or the UK "could help with instances of absenteeism, and to help to ensure social justice and that income generated by the ownership of Scotland's land and building is not extrapolated by wealthy individuals to the detriment of local communities". The Consultation does not explain how being registered for tax purposes in an EU member state or in the UK will achieve these aims.
The Consultation acknowledges that the current devolved settlement may limit the SG's ability to take this proposal forward and that there are several complex legal issues to consider. Because of this, the SG is seeking engagement with the UK Government to press them to introduce a similar requirement on a UK basis.
Proposed conditions on who can benefit from public funding
In the Consultation, the SG explains its position that:
- public funding for land- based activities should support SG policy objectives;
- Scotland needs private inward investment to support public funding to achieve climate change objective; and
- there is a concern regarding the extent to which profit from land investment which may have the benefit from public subsidy is "finding its way out of the country".
The Consultation proposes new eligibility requirements for landowners to receive public funding from the SG for land-based activity but, does not contain any detail on the subsidies affected by the proposal. The paper refers to examples of tree planting and peat restoration.
The proposed eligibility requirements are:
1. All land, regardless of size, must be registered in the Land Register to public funding for land-based activity.
Given that it is unlikely that the SG's target of completion of the Land Register by 2024 will be met, this is another means by which it could accelerate completion and compel landowners to move their titles from the Sasines Register to the Land Register. The Consultation acknowledges that there will be a cost for affected landowners.
2. Owners of LSLs must demonstrate compliance with the LRRS and have an up-to-date Land Management Plan or, face withdrawal of public funding. Please see our separate blog on the Consultation's proposal to place a legal duty on owners of LSLs to comply with the LRRS and the requirement to publish a Land Management Plan. The Consultation contains no exploration of how this proposal would work in practice.
The Consultation proposes that all recipients of land-based subsidies should be registered and liable to pay tax in the UK or EU but, the paper omits to set the proposal as a formal question and seek views on it. The Consultation does not set out how the EU or UK tax status of landowners would achieve its objectives.
Even at this early stage in the development of these proposals, it is possible to see the potential impact on the land market of introducing restrictions on who can acquire land in Scotland and, the practical and cost implications for landowners who will have to take additional steps to receive public funding for land-based activity.