LBTT3049 - Green Freeports

LBTT3049 - Green Freeports

Overview

A Green Freeport is a large, zoned area within a defined boundary which includes a rail, sea or airport link. 

Green Freeports have four main objectives:

• promoting regeneration and high-quality job creation
• promoting decarbonisation and a just transition to a net zero economy
• establishing hubs for global trade and investment
• fostering an innovative environment

LBTT Green Freeports relief is a full or partial relief from land and buildings transaction tax (LBTT). The relief is available for eligible transactions relating to land in designated Green Freeport tax sites only.

Full relief is available when at least 90% of the chargeable consideration for the transaction relates to qualifying land on a designated Green Freeport tax site.

Partial relief is available when at least 10% of the chargeable consideration for the transaction relates to qualifying land on a designated Green Freeport tax site.

 For further guidance see:

Green freeports - Cities and regions - gov.scot (www.gov.scot)

This is a list of the legislation covering Green Freeports. Click on our legislation links or visit legislation.gov.uk for more information.

Schedule 16D Green Freeports Relief

Land & Building Transaction Tax (Scotland) Act 2013, (LBTT(S)(A) 2013)

Revenue Scotland and Tax Powers Act 2014 (RSTPA 2014)

Key Terms

Transaction land

This means, in relation to a land transaction, land that a chargeable interest in is the subject matter of the transaction. This includes a lease transaction.

Qualifying Green Freeport land

Transaction land is “qualifying Green Freeport land” if on the effective date of the transaction, the land is:

1. situated within a Green Freeport tax site

and

2. the buyer intends it to be used exclusively in a qualifying manner

Green Freeport tax site

For the purposes of LBTT, a Green Freeport tax site is an area which has been designated as a freeport tax site in Scotland for the purposes of and in regulations made under section 113 of the Finance Act 2021.

Use of land in a qualifying manner

To meet the definition of qualifying use, the buyer or a connected person must:  

1. use the land in the course of a commercial trade or profession
2. develop or redevelop land for use by any person in the course of a commercial trade or profession
3. exploit the land, in the course of a commercial trade or profession, as a source of rents or other receipts (other than excluded rents)

The following exclusions apply:

1. land used as a dwelling or as the garden or grounds of a dwelling
2. land developed or redeveloped to become residential property
3. land used as a source of rents or other receipts where the use is as a dwelling or as the garden or grounds of a dwelling

or

4. land held as stock of the business for resale without development or redevelopment

Ancillary Land

It is possible to include ancillary land in a claim for relief. Use of land in the course of a commercial trade or profession includes use of land for a purpose that is ancillary to the use of other land which is situated in a Green Freeport tax site and is being used, or developed or redeveloped, in the course of a commercial trade or profession. The ancillary use must support the use of land in a designated tax site land, such as a warehouse access road or a car park.

The transaction as a whole must meet all of the relief conditions to include ancillary land.

Connected persons

Connected persons as per LBTT Act 2013 Section 58 has the same meaning as it has for section 1122 of the Corporation Tax Act 2010.

Definitions

Trade or profession includes:

• property rental businesses (definition as per Part 3 Chapter 2 Income Tax (Trading and Other Income) Act 2005)
  • every business which the person carries on for generating income from land in the United Kingdom, and
  • every transaction which the person enters into for that purpose otherwise than in the course of such a business

Commercial, in relation to a trade or profession, means carried on:

• on a commercial basis, and
• with a view to profit

Development:

For the purposes of the relief there is no statutory definition of ‘development’. We interpret this as, the physical adaptation for a new use.

Whether development of land has taken place is a question of fact. Consideration of this will be given on a case-by-case basis.

For the purposes of the qualifying use conditions, factors to consider in determining if development has taken place include, but are not limited to:

• Construction work
• Management of development activities

At the point of claim, a buyer or lessee might intend to use the land in a qualifying manner, e.g. by developing at some point in the future within the control period.  Factors that might suggest the intent to develop include but are not limited to:

• Seeking planning permission
• Design Work

Notes on marketing:

Marketing for onward investment.

Marketing a potential development opportunity is unlikely to meet the intention requirements in isolation. This is likely to fall within the ‘held for sale or resale without development’ exclusion.

Marketing a completed development or land in the process of development will be considered alongside other factors.

Excluded rents means rent for:

• an electric-line wayleave
• the siting of a pipeline for gas
• the siting of a pipeline for oil
• the siting of a mast or similar structure for use by a mobile telephone network or other system of electronic communication
• the siting of a wind turbine

For further guidance see:

Corporation Tax Act 2010 Section 605 Property rental business: exclusions

Finance Act 2021, Section 113 Designation of freeport tax sites

Chapter 2 of part 3 Income Tax (Trading and Other Income) Act 2005

Section 1122 of the Corporation Tax Act 2010

Green Freeport relief

Full relief

Full relief from LBTT is available for land transactions where:

1. at least 90% of the chargeable consideration for the transaction is attributable to qualifying Green Freeport land

and

2.  the effective date is within the period 1 October 2023 and 30 September 2028

Full relief is applicable where a transaction meets both conditions.

Attributing chargeable consideration to land

The chargeable consideration for a land transaction that can be attributed to qualifying green freeport land must be determined on a just and reasonable basis.

Examples

Partial relief

Partial relief from LBTT is available to transactions where:

1. at least 10% of the chargeable consideration is attributable to qualifying Green Freeport land

and

2. the effective date is within the period 1 October 2023 and 30 September 2028

Partial relief is applicable where a transaction meets both conditions. The tax chargeable for the transaction is reduced by the relevant proportion.

Calculate the relief due on a just and reasonable apportionment. The apportionment applies to chargeable consideration for qualifying Green Freeport land only. Evidence of the apportionment valuation must be available.

Examples

 No relief

Relief is not available where less than 10% of the chargeable consideration is attributable to qualifying Green Freeport land.

Examples

Green Freeports relief can only be claimed per LBTT(S)A 2013, Part 3, section 27(2) by:

• including a claim for relief in the original LBTT return
• making an amendment to the LBTT return within the amendment period.

For further guidance see:

How to submit, amend or pay LBTT | Revenue Scotland

LBTT(S)A 2013, Part 3, 27(2) 

Withdrawal of relief

Relief may be withdrawn where land is not exclusively used in a qualifying manner, during the control period.

The control period means the shorter of:

• 3 years beginning with the effective date of the transaction, or
• the period beginning with the effective date of the transaction and ending with a subsequent effective date which leads to neither the buyer nor a connected person holding a chargeable interest in the qualifying Green Freeport land (this could be the result of multiple transactions).

Where the following exceptions apply, relief will not be withdrawn if:

• unforeseen circumstances beyond the buyer’s control mean that it is not reasonable to expect the land to be exclusively used in a qualifying manner
• a qualifying use has not yet begun, but reasonable steps are being taken to ensure that the land is used in a qualifying manner
• the use of all or part of the land in a qualifying manner has ceased, but reasonable steps are being taken:

1. to ensure that it is used in that manner, or
2. to dispose of all chargeable interests in that land or part of the land that are held by the buyer and connected persons in a timely manner

Where the buyer ceases to hold a chargeable interest in part of qualifying Green Freeport land during the control period, withdrawal of relief is not applicable.

Where LBTT Green Freeport relief is withdrawn, the tax payable is what would have been payable in respect of the original transaction.

On the withdrawal of LBTT Green Freeport relief, it is the responsibility of the buyer to make a further LBTT return, within 30 days of the qualifying use ending.

Examples

Definitions

Control period

The control period is the shorter of:

a) the period of three years beginning with the effective date of that transaction, and

b) the period beginning with the effective date of that transaction and ending with the effective date of the final transaction.

Final transaction

A transaction is a final transaction where immediately after the effective date the buyer nor connected person holds a chargeable interest in qualifying Green Freeport land

Interest where relief is withdrawn

Where relief is withdrawn, interest will be payable against any tax liability calculated due to the withdrawal of the relief.

Interest will be treated as accruing from the ‘relevant date’, being 30 days after the date of the disqualifying event.

 For further guidance see:

The Revenue Scotland and Tax Powers Act (Interest on Unpaid Tax and Interest Rates in General) Regulations 2015

Alternative finance arrangements

Alternative property finance arrangements / relief and Green Freeport relief interact with each other.

Where alternative property finance arrangements are entered into, the ‘buyer’ for LBTT Green Freeport relief purposes is the ‘relevant person’ (a person other than the financial institution who entered into the arrangement), as set out in LBTT Act 2013 Schedule 7.  It is the ‘relevant person’ who will be entitled to relief and who must meet the conditions for relief.

Example

Definitions

First transaction

The purchase of a major interest in land sold to a financial institution and leased to a person.

Relevant person

The person, other than the financial institution, who entered into the alternative finance arrangement.

For further guidance see:

LBTT(S)A 2013, Schedule 7 Alternative property finance relief

Schedule 16D Green Freeports Relief (Insert when available)

Green Freeports leases

Green Freeport Relief

Relief is available in full or in part for a lease where the qualifying conditions are met. See Key Terms: Qualifying Green Freeport land and Use of land in a qualifying manner.

Full Relief

Where full relief is claimed there is no requirement for 3-year review returns.  See Lease assignations and variations below for further guidance.

Where the relief is then withdrawn this has the effect of granting a new lease a further return is due which will be subject to review returns.

Partial Relief

Where partial relief is claimed there is a requirement to file 3-year review returns. When claiming partial relief, a review of the tax position is required under the 3 yearly review provisions. The treatment for assignation and variations is set out below.

Grant of a new lease

Where the grant of a new lease qualifies for full relief during the relief period, the relief will end on the earlier of:

• the end of the lease term
• when qualifying use ceases

Note: relief is not automatically withdrawn at the end of the relief period.

Leases assignations

Assignation of a lease granted before the relief period

Where the grant of a lease was before 1 October 2023 no Green Freeport relief would be available. Any assignation during the relief period but out with the 12-month amendment period would not qualify for relief.

Full Relief

Lease assignations within the relief period

Where a lease benefitting from relief is later assigned and relief remains applicable an assignation return is not required.

Lease assignations out with the relief period

Where a lease benefitting from relief is later assigned out with the relief period the assignation is treated as the grant of a new lease. Please see lease transaction technical guidance for further information on new leases.

Partial Relief

Lease assignation within the relief period

Where a lease is benefitting from partial relief, review returns, and any assignation return will be required.

On assignation the new tenant would not be able to claim any further relief through a review return. A relief can only be claimed through an original return or amendment to that return within the 12-month amendment period. 

Example

Variations

Where a lease benefitting from relief is varied out with the relief period, no further relief can be claimed on variation.

Where a lease becomes notifiable during the relief period, due to a variation in term or rent, a return will be required. Relief can be claimed in such cases where qualifying conditions are met.  

Notifiable leases

Leases are notifiable:

• Where the grant of a lease is for a period of 7 years or more, the lease will be notifiable where the relevant rent is £1,000 or more, or the chargeable consideration other than rent is £40,000 or more
• Where the grant of a lease is for less than 7 years but LBTT is payable on the transaction

Where a lease becomes notifiable during the relief period, due to a variation in term or rent a return will be required.   

Withdrawal of relief leases

Where relief is withdrawn normal lease rules apply.

A further return is required within 30 days of the withdrawal of relief. Review returns would be due on the further return. Where appropriate thereafter assignation and or termination returns would be required.

For further guidance see:

LBTT6006 Notification