When is LBTT relief denied for alternative finance investment bond arrangements under paragraph 26?

Relief is denied in two situations: first, where the bond arrangements are not entered into for genuine commercial reasons, meaning they must have a real business purpose beyond obtaining a tax advantage; and second, where the arrangements form part of a wider scheme in which one of the main purposes is the avoidance of LBTT.

Does the anti-avoidance rule in paragraph 26 apply to substitutions of assets within bond arrangements?

Yes, the restriction extends beyond the original first and second transactions to any substitution of the underlying asset within the bond arrangement. If land originally involved is replaced with a different property during the life of the bond, the relief for that substitution transaction will also be denied if the anti-avoidance conditions are triggered.

What are alternative finance investment bonds and why do they receive LBTT relief?

Alternative finance investment bonds are Sharia-compliant financial products that replicate conventional lending through a different legal structure. Schedule 8 reliefs ensure these transactions are not subject to a double charge of LBTT, exempting both the acquisition of land by the bond issuer and the subsequent transfer back to the other party.

What happens if an alternative finance investment bond arrangement is used solely to avoid LBTT?

If the arrangement was structured primarily to avoid LBTT and the parties had no genuine commercial need for the bond structure, then the reliefs under paragraphs 15 and 19 of Schedule 8 are denied. Both the first and second transactions would then become subject to LBTT in the normal way.

Land and Buildings Transaction Tax (Scotland) Act 2013 Schedule 8 paragraph 26

Anti-avoidance rule for alternative finance investment bond reliefs

Paragraph 26 sets out when the LBTT reliefs available for the first and second transactions under alternative finance investment bond arrangements will be denied.

The reliefs from LBTT for both the first and second transactions in bond arrangements can be withdrawn if certain conditions are met.
Relief is denied if the bond arrangements are not entered into for genuine commercial reasons.
Relief is also denied if the arrangements form part of a scheme where a main purpose is the avoidance of LBTT.
This anti-avoidance rule also applies to any substitution of assets within those bond arrangements.

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