The Scottish government has launched a consultation on the tax treatment of property investment funds, a move widely welcomed by industry experts who argue that greater tax alignment with the rest of the UK is crucial to unlock investment.

The experts highlight that current disparities in Land and Buildings Transaction Tax (LBTT) create an unfavourable environment for UK-based fund vehicles like the reserved investor fund (RIF), co-ownership authorised contractual schemes (CoACS), and property authorised investment funds (PAIF), thereby discouraging the pooling of property assets across the UK and hindering broader pension reform efforts.

They said the consultation on LBTT reliefs for property funds “can level the playing field on tax and let loose new investments into Scottish housing, social investments and net zero”.

David Melhuish, director at the Scottish Property Federation, said: “The Scottish government’s consultation is a welcome development for the new RIF, and other UK-based fund vehicles – CoACS and PAIF – which hold property. As the rules currently stand, Scottish property would be subject to an unfavourable tax treatment if they were pooled into one of these vehicles which creates both disparity and discouragement for investment.

“We need parity in tax treatment to ensure that our UK-based fund vehicles can pool assets from across the UK – particularly in the context of the UK government’s wider pension reform agenda and drive to consolidate existing pension schemes into mega funds, along with the need to generate economic growth across Scotland.”

Paul Richards, CEO at the Association of Real Estate Funds, said: “The property industry is making good progress towards accomplishing more social and sustainable investments. But they could travel at a quicker pace, and invest greater sums, with more harmonisation in the way they are taxed in England and Scotland. This consultation is therefore very welcome.”

Rachel Kelly, assistant director of finance at the British Property Federation, said: “We welcome this Scottish consultation on the tax treatment of property investment funds. In order for our suite of UK investment funds, including the RIF, to be effective vehicles to support the UK government’s drive to consolidate existing pension schemes into mega funds – it’s essential that the tax rules are better aligned to allow property assets to be pooled from across the UK.”

Melville Rodrigues, head of real estate advisory, Apex, said: “This is a genuine fillip for the Scottish economy. As the progenitor and lead advocate of the RIF, my passion is that RIF strengthens the fund offering and improves competitiveness in the whole of the UK including Scotland and Wales. The RIF will support investment in longer-term, less-liquid private assets like housing, infrastructure, and facilitate regional growth.

“I am delighted that earlier this year, under UK legislation, fund managers can launch RIFs: legislation which includes stamp tax reliefs in England and Northern Ireland for RIF seeding and the issue, transfer and redemption of units. These reliefs enhance the prospects of RIF managers attracting pension scheme and other institutional capital, from the UK and internationally.

“Scottish government officials have constructively engaged with the RIF project, and – as a result of the consultation – there are the prospects of parity LBTT reliefs in Scotland in Q1 2026 for the RIF as well as the CoACS and PAIF. I am also determined that reliefs apply in Wales, and am encouraged by current Welsh government discussions.”

Bruce Patrick, director and founder of MATH Real Estate Partners, said: “The real estate markets still carry the scars of the great financial crash which effectively removed the support of the indigenous banks and caused many open-ended institutional funds that owned Scottish assets to close. Whilst replacement investors have been found for existing assets mainly from overseas and international markets, finance for large-scale development and regeneration projects is scarce and expensive.

“This is where RIF could be transformative in helping fund the next generation of buildings, infrastructure and public places. The establishment of a tax-efficient, onshore investment vehicle for local authority and other pension schemes to provide long-term, lower-cost funding to developers has the potential to deliver much more rapid progress and positive change to commercial and residential real estate markets.

“The residential-to-rent sectors provide long-term income streams that are closely aligned with matching pension fund liabilities. Therefore, the potential for a fully optimal RIF structure in Scotland with these tax reliefs – to fund large-scale housing led regeneration addressing both the housing emergency and wider positive social impact – should be made a priority.”

Jeff Rupp, director of public affairs at INREV, said: “Scottish authorities granting LBTT seeding reliefs and other exemptions for PAIFs, CoACSs and RIFs would be a welcome change for institutional real estate investors and investment managers.

“It will likely lead to greater investment in environmental and social impact and net-zero-carbon strategies in Scotland, which is critically needed.”

The consultation, seeking responses on issues such as the LBTT liability on CoACS unit transfers, the exemption of RIF unit transfers from LBTT and the introduction of seeding relief under LBTT, is open for feedback until 5 September.

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