SCOTTISH INDEPENDENCE VOTE

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Edmund Carson
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2 SCOTTISH INDEPENDENCE VOTE On 18 September 2014 the people of Scotland will be invited to the polls to vote on an independence referendum. Regardless of the outcome it will lead to further change, building upon the change seen since the decision to devolve certain powers taken in 1999 and the creation of the Scottish Parliament. What will the referendum mean for investors in Scottish real estate? 1. The Time line 19th November th May st July th May 2011 January 2012 May 2012 June st August th October 2012 Winter th September The Scotland Act to establish the Scottish Parliament and Executive receives Royal Assent The irst elections to the Scottish Parliament The Scottish Parliament is opened and granted devolved powers SNP majority vote at Holyrood Consultation on the Independence Referendum Yes Scotland campaign launched Better Together campaign launched Scotland Act 2012 receives Royal Assent Edinburgh Agreement signed Referendum Scotland Act 2013 expected to receive Royal Assent Referendum Do you agree that Scotland should be an independent country? Target date to implement independence (if a yes vote) 2. Current powers of the Scottish Parliament The Scottish Parliament can make laws on areas known as devolved matters. However, some issues remain the responsibility of the UK Parliament alone. The issues upon which only the UK Parliament can make laws are known as reserved matters. Devolved matters include:- agriculture, forestry and isheries, education, training and environment; health and social services, housing, law and order, local government, sport and the arts; and tourism, economic development and transport (including drink-driving and speed limits). Reserved matters include:- beneits, social security and immigration; defence, foreign policy, employment, broadcasting and trade and industry; nuclear energy, oil, coal, gas and electricity; and consumer rights, data protection and the constitution.

3 3. What are the key considerations if Scotland votes yes? At this stage it is very diicult to tell, because most of the core legislation has still to be presented, debated and decided upon. Even if Scotland votes yes, there will need to be a period of negotiation between Scotland and Westminster as to the detailed terms of the separation including transitional arrangements. As such, it is diicult to give clear advice, but what we can do is pre-empt the key areas of impact and assist our clients to implement risk management strategies. Those key areas include: A change of currency euro or other? Currency risk/exchange controls? A new credit rating? Continued regulation by the Bank of England? Membership of the EU? A removal of UK subsidies would they all be replaced? Particularly relevant for sectors such as renewables. Incentives ofered to create a fund domiciled in Scotland/invest in Scotland? Increased tax diferentiation rates, principles and collecting agencies? New regulatory authorities (such as the FSA) and new regulations or at least increased regulatory divergence? Changed status for UK investments Scottish assets would become just that or could they become European investments? Legislative change? All investors need to be aware of the potential impact and have a strategy in place to allow them to monitor developments in Scotland and react at the time when reaction is prudent, in the same way as they should with all foreign jurisdictions currently. Change may well bring opportunity, but awareness is key. 4. And what if the vote is no? Even a no vote in our view will not derail the journey of change which commenced in Even with a no vote, the Scotland Act 2012 will still drive through tax diferentiation. A new property tax, the Land & Buildings Transaction Tax, will replace SDLT in Scotland in 2015 regardless of the independence vote. Further change may follow. Residency may dictate tax rates, as location already does business rates and certain other payments. As can be seen from the following section, the last 15 years has brought an increase in legislative and regulatory change in Scotland in contrast to England in a number of areas some for the better; even with a no vote, the indicators are that the pattern of change and diferentiation will continue.

4 5. Trends and developments over the last 15 years Land and real estate in Scotland and England have always been governed by diferent legislative systems. But the last 15 years have seen change increase at rapid pace, with a shift in emphasis from just legislative change to both legislative and regulatory change. In this brieing we have sought to identify the primary areas of interest to the real estate sector and to focus on: change already efected or in process since the establishment of the Scottish Parliament; core areas of impact on real estate; and further changes being mooted. 6. Change already efected or in process since the establishment of the Scottish Parliament Land ownership Business rates Enterprise zone incentives Long leases Land registration Scottish Large Retailers Health Supplement Taxation Building eiciency Planning Arbitration Freedom of information Tenements

6 7. Core areas of impact for real estate a little more detail The six key areas which we have identiied as most key to the real estate sector are: Taxation Business rates Building eiciency Enterprise zone incentives Planning Long leases There are others but these are the areas we see most heavily impacted or most likely to be impacted by change both in terms of legislative efect and also regulatory governance. To take a snapshot look at each of these areas and the most signiicant changes proposed to each: Taxation Land and Buildings Transaction Tax: being introduced to replace SDLT in Scotland in 2015 and administered by a new body called Revenue Scotland. The proposal is for a progressive tax. Early indicators are we may see increased rates at the higher end, but there is no hard evidence of that at this stage and politically there will be a need to continue to encourage investment in Scotland, so we can expect continued business lobbying against any material diferentiation. Scottish Landill Tax: being introduced to replace the current Landill tax and administered by Revenue Scotland. Indicators are it will be no less than the current rate. Income Tax: Proposals have been tabled to introduce a Scottish tax in 2016 one where we may also see a rates diferential introduced but again to be assessed against the political background and the need to secure economic growth in Scotland. Our partner Iain Doran appeared before the Justice Committee of the Scottish Parliament along with the Tax Committee of the Law Society of Scotland in January 2013 to provide expert advice on the introduction of the Land and Buildings Transaction Tax. Iain has also summarised the tax for the Estates Gazette and a copy of his article can be found on our website. Business rates Empty Property Business Rates relief: from 1 April 2013 relief levels have been reduced from 50% relief after three months to 10% relief (the irst 3 months attracting 100% relief) for commercial properties, with certain exceptions. Greater relief applies for new builds and new build occupiers of shops or oices which have been empty for at least a year. Large Retailers or Health Business Rates Levy: introduced a rates supplement of 13p in the pound on all large retail properties in 2013/14 with a rateable value on or over 300,000 which sells both alcohol and tobacco. Renewable energy rates relief: provides up to 100% rates relief for renewable energy producers concerned with the production of heat or power from various speciied sources. Our partner Donald Shaw has discussed the impact of business rates and the investment market in Scotland in The Scotsman and a copy of his article can be found on our website.

9 Building eiciency EPCs: diferent rules apply, resulting in amongst other things diferent bandings and ratings between the jurisdictions; there is no sign of alignment. Compulsory improvements for older Scottish buildings: through the Climate Change (Scotland) Act 2009 we are seeing the proposed introduction in Scotland, anticipated in 2014, of certain minimum energy eiciency improvements to commercial buildings subject to a loor cap and limited exceptions, benched against the 2002 Scottish building regulations. Letting prohibitions on poorly rated properties: through the Energy Act 2011 various energy controls are being introduced to both Scotland and England, but with a diferent timetable and indeed diferential regulatory control over lettability of residential or commercial properties with poor eiciency ratings dependent on location. It is possible Scotland may jump irst. Public Aye, our dedicated online update service for the public sector, has further information on this which can be found at Enterprise Zone incentives Diferent rules already apply. Recently created zones: created in 2012 in Scotland and England through diferent legislation and with diferent incentives. Planning Historically diferent systems. Increasing divergences appearing: such as the statutory 6 week Judicial Review period in England, where Scotland has no deined statutory terms, and the reduction of the default implementation period in Scotland, where England has moved back towards a greater time grant. On 12th June, Dundas & Wilson hosted a conference which set out to explore the contribution that Town and Country Planning is making to Scotland s economic well-being. The title, The Planning Contribution to Our Economic Recovery, was carefully chosen: too often the planning system is considered to be a barrier to economic development. However, recent changes to modernise the system have sought to make it more it for purpose in line with the aims of Scottish Ministers, and to deliver sustainable economic growth in Scotland. The underlying question was Have we gone far enough with modernisation? A summary of the debate can be found on our website. Long leases Length: new leases are already capped at 175 year duration in Scotland as opposed to 999 years which remains common in England. Residential lettings: already restrictions on residential lettings extending beyond 20 years in Scotland, yet very common in England. Proposal to convert long leases to ownership: in 2015 current leases where the duration remains in excess of 175 years with a rental level below 100 per annum will automatically convert to outright ownership. Procedures are in place for landlords to preserve existing rights after conversion. For further details our Real Estate team have issued bulletins which can be found on our website.

10 8. Further changes being mooted Community empowerment: rural communities in Scotland can enforce a statutory right to buy land and property within their community provided certain legislative procedures are followed. There are proposals at an early stage to extend this right to urban communities, whilst at the same time shifting some land from the Crown Estate, MoD and many urban spaces into community ownership. 9. How to keep track We will continue to monitor developments and provide updates. You can however speak to your relationship partner at any time who will be happy to discuss concerns with you.

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