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Changes to the land and property tax system could support Scotland’s recovery and renewal

Taxes on land and property could serve as a powerful tool for helping Scotland develop a robust, resilient wellbeing economy, according to a new report published today.

The report – Land and property taxation in Scotland: Initial scoping of options for reform – has been written for the Scottish Land Commission by Alma Economics.

It identifies a wide range of ways in which taxes have the potential to help achieve long term outcomes for land reform (such as tackling inequality, expanding the supply of land for housing and reducing the amount of vacant and derelict land).

Publication of the report coincides with the setting up of a new Expert Advisory Group on Tax on Land and Property to advise the Commission and shape the recommendations that it will put to Ministers in late 2021. Members are experts in their field drawn from a range of backgrounds including accounting, regeneration and development, surveying, legal and economics  

The report suggests that the Scottish Government’s goal of inclusive economic growth has been given added urgency by the disproportionate impact of COVID-19 on the most deprived areas of Scotland.

Suggesting that well designed tax instruments could enable the Scottish Government to stimulate economic recovery and pivot towards a regionally focused development model, the report’s authors highlight a number of levers that could be used to achieve land reform objectives.

Some taxes, including council tax, non-domestic rates and Land and Buildings Transaction Tax (LBTT), are already the responsibility of Scottish Parliament which also has the option of introducing new local taxes designed to fund local authority expenditures. The Scottish Land Commission is investigating these options further and will be making recommendations for tax reforms within the devolved competency in 2021. 

Other taxes such as corporation tax, inheritance tax and income tax, which is partially devolved, also have the potential to influence land ownership and use, though these are reserved taxes that require action from the UK Parliament.

While 50% of the UK’s wealth is tied up in land and property, it only forms around 10% of the total tax base.

In Scotland, just 12% of all public sector revenue across reserved and devolved taxes are raised through taxes fully or partially levied on land and property. 

This raises questions about how the benefits of increasing land values are distributed so that gains can benefit society as a whole. 

Identifying changes to the tax system could support Scotland’s recovery and renewal, particularly in relation to town centre regeneration, promoting active land use and diverse ownership.

The report argues that there is greater potential for these taxes to be used to fund crucial fiscal measures, to stimulate demand, incentivise behaviour change and reduce inequality.

Speaking about the report, Lorne MacLeod, Commissioner and Chair of the Commission’s newly established tax expert advisory group said, 

“Land is our most valuable asset and we need to be willing to rethink how our tax system operates to make sure we are making the most of it for everyone. 

“Taxes on land, and transactions involving land, are widely used around the world to raise revenues, reduce inequality and promote more effective land use and management.

“Taxes on land and property have the potential to stimulate behaviour change to incentivise a more productive use of land as well as disincentivising behaviour relating to land use and ownership that is not delivering wider public benefits. . 

“They also provide an important source of revenue to finance public services and infrastructure. Scotland will have to ensure best possible use of its resources, including land, to support the recovery.”

The new Tax Expert Advisory Group meeting today, 10 December 2020, for the first time, will use the report as a starting point to work with the  Land Commission on pragmatic and ambitious options for reforming tax on land and property in Scotland to help address inequalities and create a fairer, more resilient Scotland where everyone benefits from the use, management and ownership of land. 

The members of the Expert Advisory Group on Tax on Land and Property are:

  • Lorne MacLeod – Scottish Land Commissioner and Chartered Accountant
  • Charlotte Barbour – Director of Taxation, Institute of Chartered Accountants of Scotland
  • Graeme Blackett – Director, Biggar Economics
  • Miriam Brett – Director of Research and Advocacy, Common Wealth  
  • Shona Glenn – Head of Policy and Research, Scottish Land Commission
  • Phil Prentice – Chief Officer, Scotland’s Towns Partnership
  • Don MacLeod – Partner, Land and Property Department, Turcan Connell
  • David Melhuish – Director, Scottish Property Federation
  • Jeremy Moody – Secretary and Adviser to the Central Association of Agricultural Valuers
  • Ailsa Raeburn – Consultant specialising in community asset ownership

Mixed use landscape of urban and rural land in Scotland -