The Scottish Land Commission has published a report to provide advice on the role of taxation in supporting land reform. The report mentions land and buildings transaction tax, a new tax on the value of land, and capital gains and inheritance tax.

The report is called "Land Reform and Taxation: Advice to Scottish Ministers in January 2022". The Scottish Land Commission is funded by the Scottish Government. The report advises that new taxes on land would have practical advantages. Land taxes are hard to avoid and are based on more stable and predictable values than the income of people or of businesses. The report advises that taxing land values could address

(1) rising inequalities – they report that land accounts for two thirds of UK net worth

(2) low productivity - land owners would be encouraged to use the land to produce income to meet taxes.

The report advises that many of the Scottish Government's significant tax levers are reserved to Westminster so the Scottish Government has limited scope to use tax to achieve land reform objectives.

How likely is a land value tax?

This report builds on a previous report, on which we blogged earlier here In both reports the conclusion is that a single value land tax – for example charged annually on land depending on value - is not being recommended. The comment in this latest report is that this tax has been looked at previously, no country has successfully done this, and there are a number of practical hurdles. It seems therefore that a land value tax is unlikely at this time.

Using the tax levers

The report recommends that the Scottish Government use the tax levers available to it to make small changes. For example, there is a recommendation that LBTT be looked at and changed in a way to support diversification of ownership. The report concedes that the amount of tax raised would be low - £25m over 5 years - and the reduction of concentration in land ownership would be small – 2.5% over 20 years. However, the report says that although major change would not be affected by LBTT, it could signal a policy intent and shape market behaviour.

Fragmentation of family farms

The report also advises the Scottish Government to seek engagement on a UK basis on the potential for capital taxes – inheritance tax and capital gains tax – to be used to tax land. The report acknowledges there is a risk that family farms may be fragmented as a result of having to pay taxes, and that it is for this reason that capital taxes have reliefs and exemptions to avoid that. The report recommends discussion on the potential for an approach to the reliefs and exemptions to support diversification of ownership. These are reserved taxes and therefore the Scottish Government cannot bring about change in this area.

More data on land ownership

The report also advises that there should be more information on land ownership, use and value, not as a means to tax it now but in order to have data available to hand for consideration in the future.

The report's conclusion is that at this time, there is limited scope for tax levers to be applied to meet land policy objectives but that small changes could be made and a wider discussion be had. This report does not at this time appear to signal any significant changes on the immediate horizon.

If you would like to discuss this then please do get in touch with your usual Brodies contact.


Leigh Gould