BIM46845 - Specific deductions: rent & rates: feu duties

Feu duties are annual sums payable in respect of grants of land in feu in Scotland.

A feu duty is normally regarded as a deductible expense in computing the profits of a trade or profession assessable under Schedule D.

Redemption payments, however, are considered to be capital outlays (see below). Unless the land is stock in trade of a dealer in land, therefore, no deduction should be admitted for such payments.

The Land Tenure Reform (Scotland) Act 1974

The Land Tenure Reform (Scotland) Act 1974 prohibited the further granting of land in feu and provided for the voluntary or compulsory redemption of existing feu duties (see below).

Redemption payments: capital

A feu duty may be redeemed voluntarily under Section 4, Land Tenure Reform (Scotland) Act 1974. A redemption payment under Section 4 of the Act is not an admissible deduction from the profits of the business because it brings into existence an advantage of enduring benefit to the trade in that it discharges the obligation to pay feu duty in perpetuity. The interest of the vassal (the person who pays the feu duty) in the property is freed from the possibility of the exercise of the superior's rights for non-payment of the feu duty and this is an improvement of that interest.

Redemption payments: not wholly and exclusively

Where any land or building in respect of which a feu duty is payable is sold, Section 5 of the Act required that the feu duty must be redeemed by the vendor of the land or building. In the case of a redemption payment made compulsorily under Section 5, at the date of redemption the land is no longer in use for the purposes of the vendor's trade. The payment will not, therefore, fulfil the wholly and exclusively requirement (ICTA88/S74 (1)(a)).

The Abolition of Feudal Tenure (Scotland) Act 2000

The Abolition of Feudal Tenure (Scotland) Act 2000 abolished the feudal system of owning land in Scotland and replaced it with a system of outright ownership of land. As a consequence feu duty will be abolished and no feu duty will be payable for any period following the appointed day. The feudal superior will be entitled to compensation and the guidance above in respect of payments under the 1974 Act should be followed.

As regards CG, see CG14507 and CG15292.