All change: how Scottish law reforms could impact on your family business
From 'Family Business Matters', Spring 2015 By Carole Tomlinson, Anderson Strathern For any Scottish family business it is vital that the current legislative reform programme brought forward by the Scottish Government is given due consideration.
There are a wide variety of proposed changes that are likely to come through in the next 12 months and the smart family business would do well to bear these in mind.
In this article, Scottish law firm Anderson Strathern examines the proposed changes to succession law, land reform and the new Stamp Duty Land Tax replacement - Land and Buildings Transaction Tax.
Top priority - succession planning
Succession is a key issue for family businesses looking to achieve longevity and long-term success, and inevitably involves careful estate planning.
The Scottish rules relating to wills are different and, unlike those domiciled in England, Scots do not have complete testamentary freedom. Instead, legal rights ensure that a deceased's children cannot be disinherited by the terms of a will.
Historically, the scope of a legal rights claim has always been limited to the moveable (personal) estate of the deceased. However, the current Scottish Government proposals are for a child's legal rights claim to include both heritable (land) and moveable (personal) assets.
Commentators have already speculated that this could result in a major change to the way that land is owned in Scotland, with many large estates being broken up. Whether this will actually be the case remains to be seen but it would tie in neatly with the Scottish Government's land reform policy.
Although these rules are not yet in force, and are yet to pass through parliament, succession planning should be at the top of everyone's list.
Nicola Sturgeon has placed land reform at the centre of her first programme for government. The Scottish Government wants to allow communities to have a greater say on how land in Scotland is managed and for land ownership to be more transparent.
Under the proposed reforms, a community body's right to buy land in their local area will be extended to include the right to buy vacant or derelict land.
This is likely to impact on family businesses that are looking to expand their presence in Scotland by purchasing or developing land, as, community bodies will have a greater say on how the land can be used (unless properly managed).
Land transactions will incur LBTT
As of 1 April 2015, any land transaction in Scotland will incur Land and Buildings Transaction Tax (LBTT) rather than Stamp Duty Land Tax (SDLT).
LBTT is a progressive tax, and like the newly reformed SDLT, will be charged on a 'slice' basis. This means that the tax will be charged via a gradually increasing system of bands so that different rates are charged on different parts of the consideration. Although the nil-rate threshold for commercial property will remain the same, the upper bands (and rates payable in each) will be slightly different under the LBTT regime.
LBTT will be payable at a rate of 3% for any part of the purchase price of commercial property that is between £150,001 and £350,000 and at 4.5% for any part that exceeds £350,000.
In many cases this is likely to result in a tax saving and could have a positive impact on family businesses looking to develop or expand their presence in Scotland.
This whistle stop tour of the Scottish Government's programme of reform shows that change is inevitable, however with change there also comes opportunities.
By having the right advisers in place to guide them through the quagmire, Scottish family businesses will be able to concentrate on what they do best - not on the red tape.
For more information on how the proposed Scottish law changes could affect your family business, please contact Carole Tomlinson of Anderson Strathern on 0131 625 7273 or at firstname.lastname@example.org