Chamber
Meeting of the Parliament 25 April 2013
25 Apr 2013 · S4 · Meeting of the Parliament
Item of business
Land and Buildings Transaction Tax (Scotland) Bill: Stage 1
I would describe the position as work in progress. As I set out to Parliament last June, Registers of Scotland will be the collection organisation for the new tax. Registers of Scotland is already involved in the collection of a large amount in existing fees for property transactions as part of its routine or rudimentary role and functions, so the collection of the new tax will be essentially a bolt-on to its existing responsibilities. The project board that supervises the implementation of the proposals is acutely monitoring the important issues that Mary Scanlon has fairly raised. As we proceed towards implementation in April 2015, I will continue to keep Parliament updated about the progress that is being made, as I recognise that the establishment of effective IT systems is an important consideration.
I explained to Parliament last June that we will establish revenue Scotland to assess and collect devolved taxes. By 2015, in line with international best practice, revenue Scotland will be operationally independent and will work alongside Registers of Scotland on LBTT and alongside the Scottish Environment Protection Agency on the landfill tax, which we will introduce into the bargain. Our approach to establishing a new Scottish tax authority has been widely welcomed. We will continue to update Parliament on the steps that are being taken to implement the arrangements around revenue Scotland.
As we made clear when presenting our programme for government last September, we have a legislative programme through which we will put in place the two taxes that are devolved under the Scotland Act 2012. Following the introduction of the LBTT bill, a second bill making provision for a Scottish landfill tax was introduced to Parliament on 17 April. We propose a third measure for the next legislative programme that will deal with tax management. The public consultation on proposals for a tax management bill closed on 12 April, and we propose to introduce the bill in the autumn. The tax management bill will establish revenue Scotland on a statutory basis and set out the underpinning arrangements that are required to support both devolved taxes. The bills are the first important steps to establishing the principle that taxes paid in Scotland are best set, managed and collected here by those with Scotland’s best interests at heart.
The LBTT bill has been developed with two key objectives in mind. First, we have sought to simplify the relevant legislation, both in content and in structure. Over the past decade, stamp duty land tax has suffered from additional layers of new legislation year on year, and taxpayers and their advisers often find its complexity difficult to understand and navigate. By contrast, the LBTT bill has a clear structure, the tax reliefs have been rationalised and grouped logically together and the provisions of the bill are clearly set out.
As I said, we are moving away from the slab rates of stamp duty land tax that distort the property market, particularly for housing, and may encourage taxpayers to record false prices—for example, by overvaluing moveable items included in a sale in order to pay tax in a lower tax band. Instead, we are proposing a progressive system of taxation, under which the amount paid will be more closely related to the value of the property and, therefore, to the ability of the individual to pay. That approach has been warmly welcomed by tax professionals and others during the consultation process.
The scenarios in the consultation paper that we launched last June also indicated a willingness to adjust the tax thresholds in order to support first-time buyers and those at the lower end of the market. To demonstrate the difference that a progressive approach can bring for those purchasing residential property in Scotland, the consultation paper illustrated two revenue-neutral scenarios. The first would remove the tax charge from all house purchases below £180,000, which would significantly benefit first-time buyers. The second would have the effect that anyone purchasing properties at less than £325,000 would pay less tax, which would benefit around 95 per cent of the property market. Those who purchased property at higher values would, of course, pay more.
To further simplify the operation of the tax, the anti-avoidance provisions for stamp duty land tax in section 75A of the Finance Act 2003, which experienced tax practitioners find hard to understand, have not been replicated in the bill. Tax practitioners have welcomed our intention to bring forward a general anti-avoidance rule in the tax management bill, which will be introduced to Parliament in due course.
A second objective in developing the bill was to bring the provisions into line with Scots law and practice. We see it as essential that taxpayers and expert communities should have an integral role in ensuring that our approach to taxation is, and remains, fit for purpose.
The work undertaken by bill team officials with an expert working group on non-residential leases well illustrates that collaborative approach. Input from the expert group will ensure that the tax treatment of non-residential leases in Scotland will be firmly grounded in Scots law and practices. Under the current SDLT system, English property law effectively applies, which creates confusion and conflict with the existing statutes of Scots law.
Having met with members of the working group, I have concluded that the tax payable on non-residential leases will be based on the net present value approach, with a recalculation of the tax due at three-yearly review periods, based on the rent paid over the period. A taxpayer will also be required to submit a return at the end of the lease. The expert working group on non-residential leases is working with the bill team to devise the detailed rules of the new approach to taxing non-residential leases, and I am grateful to it for its input.
I turn to the Finance Committee’s report. I readily acknowledge the penetrating debate on a wide range of issues that has taken place during the committee’s stage 1 evidence-taking sessions. I am delighted that the committee has supported the general principles of the bill. Yesterday, I wrote to the committee’s convener to respond to the various issues that were raised in its report, and I will comment briefly on some of the key issues covered in the report and my response.
As the bill’s policy memorandum explains, my initial thinking was to set out at the time of the draft budget in September 2014 the land and building transaction tax rates and bands that would apply from April 2015. The committee recognised in its report that witnesses held a range of views about when tax rates and plans should be published, ranging from a week before the introduction of the tax to two years prior to introduction.
I have yet to reach a firm conclusion on the matter, but it is not my intention to announce rates and bands any earlier than September 2014. In light of the views expressed, I will consider carefully whether to wait until nearer April 2015.
The existing stamp duty land tax rules for relieving so called sub-sales are acknowledged to provide opportunities for aggressive tax avoidance activity. Tax avoiders have employed a range of schemes to construct land transactions in a way that means that no tax is paid at all. I am clear that responsible taxpayers do not welcome such attempts to shift the legitimate burden of taxation. I have made clear to Parliament on a number of occasions that we will take a rigorous approach to dealing with tax avoidance.
In the United Kingdom budget in March 2012, the Chancellor of the Exchequer committed to consulting on legislation to narrow the sub-sale relief rules and reduce the scope for avoidance. That consultation has taken place, and the reformed sub-sale rules are making their way through Westminster in the Finance (No 2) Bill. However, I believe that it is necessary to go further than that. I do not intend to replicate in taxes that are devolved to Scotland rules and reliefs that have led to avoidance activity. I therefore introduced the LBTT bill without any form of sub-sale relief.
I welcome the Finance Committee’s support for the removal of sub-sale relief. Having considered the committee’s report carefully I do not intend open the way to any form of sub-sale relief. To do so would open up a significant risk of giving scope to tax avoiders who are intent on reducing their tax burden through artificial schemes that this Parliament does not think merit relief.
Members of the Finance Committee have heard evidence from some stakeholders who have stated the case for a targeted form of relief for a class of property transactions that are referred to as forward funding arrangements. I am giving careful consideration to those arguments, which I believe have been raised with the best of intentions. My question is whether giving those transactions relief under LBTT will open the door to the sort of tax avoidance activity that has been a negative of stamp duty land tax to date.
I am committed to the creation of a tax environment that is supportive of economic activity in Scotland. I wish to ensure that widely accepted development transactions, such as those described to the Finance Committee, continue without an undue tax burden.
The property development industry plays a vital role in supporting economic growth and regeneration. Therefore, we are undertaking further work with stakeholders to ensure that the parties to a forward funding arrangement achieve a fair outcome under LBTT.
Charities relief was also the subject of some discussion at the committee’s stage 1 evidence-taking sessions. Some stakeholders expressed concern about the requirement for charitable organisations that invest in, but do not occupy, property in Scotland and those that use the associated income stream for charitable purposes to register with the Office of the Scottish Charities Regulator to obtain that relief.
I firmly believe that, to protect the tax base, it is vital to have systems in place to ensure that any relief—not just charities relief—fully satisfies rigorous eligibility criteria. Officials are discussing with revenue Scotland and OSCR an alternative approach for the small number of cases affected each year.
I am confident that we will have the legal and administrative systems in place in good time to collect a fair and robust land and buildings transaction tax in Scotland from April 2015. I have covered in this speech the approach that the Government is taking to the formation of the legislation and the issues that have been raised in the Finance Committee. I look forward to considering with colleagues the issues that are raised as a consequence of the debate.
I move,
That the Parliament agrees to the general principles of the Land and Buildings Transaction Tax (Scotland) Bill.
14:46
I explained to Parliament last June that we will establish revenue Scotland to assess and collect devolved taxes. By 2015, in line with international best practice, revenue Scotland will be operationally independent and will work alongside Registers of Scotland on LBTT and alongside the Scottish Environment Protection Agency on the landfill tax, which we will introduce into the bargain. Our approach to establishing a new Scottish tax authority has been widely welcomed. We will continue to update Parliament on the steps that are being taken to implement the arrangements around revenue Scotland.
As we made clear when presenting our programme for government last September, we have a legislative programme through which we will put in place the two taxes that are devolved under the Scotland Act 2012. Following the introduction of the LBTT bill, a second bill making provision for a Scottish landfill tax was introduced to Parliament on 17 April. We propose a third measure for the next legislative programme that will deal with tax management. The public consultation on proposals for a tax management bill closed on 12 April, and we propose to introduce the bill in the autumn. The tax management bill will establish revenue Scotland on a statutory basis and set out the underpinning arrangements that are required to support both devolved taxes. The bills are the first important steps to establishing the principle that taxes paid in Scotland are best set, managed and collected here by those with Scotland’s best interests at heart.
The LBTT bill has been developed with two key objectives in mind. First, we have sought to simplify the relevant legislation, both in content and in structure. Over the past decade, stamp duty land tax has suffered from additional layers of new legislation year on year, and taxpayers and their advisers often find its complexity difficult to understand and navigate. By contrast, the LBTT bill has a clear structure, the tax reliefs have been rationalised and grouped logically together and the provisions of the bill are clearly set out.
As I said, we are moving away from the slab rates of stamp duty land tax that distort the property market, particularly for housing, and may encourage taxpayers to record false prices—for example, by overvaluing moveable items included in a sale in order to pay tax in a lower tax band. Instead, we are proposing a progressive system of taxation, under which the amount paid will be more closely related to the value of the property and, therefore, to the ability of the individual to pay. That approach has been warmly welcomed by tax professionals and others during the consultation process.
The scenarios in the consultation paper that we launched last June also indicated a willingness to adjust the tax thresholds in order to support first-time buyers and those at the lower end of the market. To demonstrate the difference that a progressive approach can bring for those purchasing residential property in Scotland, the consultation paper illustrated two revenue-neutral scenarios. The first would remove the tax charge from all house purchases below £180,000, which would significantly benefit first-time buyers. The second would have the effect that anyone purchasing properties at less than £325,000 would pay less tax, which would benefit around 95 per cent of the property market. Those who purchased property at higher values would, of course, pay more.
To further simplify the operation of the tax, the anti-avoidance provisions for stamp duty land tax in section 75A of the Finance Act 2003, which experienced tax practitioners find hard to understand, have not been replicated in the bill. Tax practitioners have welcomed our intention to bring forward a general anti-avoidance rule in the tax management bill, which will be introduced to Parliament in due course.
A second objective in developing the bill was to bring the provisions into line with Scots law and practice. We see it as essential that taxpayers and expert communities should have an integral role in ensuring that our approach to taxation is, and remains, fit for purpose.
The work undertaken by bill team officials with an expert working group on non-residential leases well illustrates that collaborative approach. Input from the expert group will ensure that the tax treatment of non-residential leases in Scotland will be firmly grounded in Scots law and practices. Under the current SDLT system, English property law effectively applies, which creates confusion and conflict with the existing statutes of Scots law.
Having met with members of the working group, I have concluded that the tax payable on non-residential leases will be based on the net present value approach, with a recalculation of the tax due at three-yearly review periods, based on the rent paid over the period. A taxpayer will also be required to submit a return at the end of the lease. The expert working group on non-residential leases is working with the bill team to devise the detailed rules of the new approach to taxing non-residential leases, and I am grateful to it for its input.
I turn to the Finance Committee’s report. I readily acknowledge the penetrating debate on a wide range of issues that has taken place during the committee’s stage 1 evidence-taking sessions. I am delighted that the committee has supported the general principles of the bill. Yesterday, I wrote to the committee’s convener to respond to the various issues that were raised in its report, and I will comment briefly on some of the key issues covered in the report and my response.
As the bill’s policy memorandum explains, my initial thinking was to set out at the time of the draft budget in September 2014 the land and building transaction tax rates and bands that would apply from April 2015. The committee recognised in its report that witnesses held a range of views about when tax rates and plans should be published, ranging from a week before the introduction of the tax to two years prior to introduction.
I have yet to reach a firm conclusion on the matter, but it is not my intention to announce rates and bands any earlier than September 2014. In light of the views expressed, I will consider carefully whether to wait until nearer April 2015.
The existing stamp duty land tax rules for relieving so called sub-sales are acknowledged to provide opportunities for aggressive tax avoidance activity. Tax avoiders have employed a range of schemes to construct land transactions in a way that means that no tax is paid at all. I am clear that responsible taxpayers do not welcome such attempts to shift the legitimate burden of taxation. I have made clear to Parliament on a number of occasions that we will take a rigorous approach to dealing with tax avoidance.
In the United Kingdom budget in March 2012, the Chancellor of the Exchequer committed to consulting on legislation to narrow the sub-sale relief rules and reduce the scope for avoidance. That consultation has taken place, and the reformed sub-sale rules are making their way through Westminster in the Finance (No 2) Bill. However, I believe that it is necessary to go further than that. I do not intend to replicate in taxes that are devolved to Scotland rules and reliefs that have led to avoidance activity. I therefore introduced the LBTT bill without any form of sub-sale relief.
I welcome the Finance Committee’s support for the removal of sub-sale relief. Having considered the committee’s report carefully I do not intend open the way to any form of sub-sale relief. To do so would open up a significant risk of giving scope to tax avoiders who are intent on reducing their tax burden through artificial schemes that this Parliament does not think merit relief.
Members of the Finance Committee have heard evidence from some stakeholders who have stated the case for a targeted form of relief for a class of property transactions that are referred to as forward funding arrangements. I am giving careful consideration to those arguments, which I believe have been raised with the best of intentions. My question is whether giving those transactions relief under LBTT will open the door to the sort of tax avoidance activity that has been a negative of stamp duty land tax to date.
I am committed to the creation of a tax environment that is supportive of economic activity in Scotland. I wish to ensure that widely accepted development transactions, such as those described to the Finance Committee, continue without an undue tax burden.
The property development industry plays a vital role in supporting economic growth and regeneration. Therefore, we are undertaking further work with stakeholders to ensure that the parties to a forward funding arrangement achieve a fair outcome under LBTT.
Charities relief was also the subject of some discussion at the committee’s stage 1 evidence-taking sessions. Some stakeholders expressed concern about the requirement for charitable organisations that invest in, but do not occupy, property in Scotland and those that use the associated income stream for charitable purposes to register with the Office of the Scottish Charities Regulator to obtain that relief.
I firmly believe that, to protect the tax base, it is vital to have systems in place to ensure that any relief—not just charities relief—fully satisfies rigorous eligibility criteria. Officials are discussing with revenue Scotland and OSCR an alternative approach for the small number of cases affected each year.
I am confident that we will have the legal and administrative systems in place in good time to collect a fair and robust land and buildings transaction tax in Scotland from April 2015. I have covered in this speech the approach that the Government is taking to the formation of the legislation and the issues that have been raised in the Finance Committee. I look forward to considering with colleagues the issues that are raised as a consequence of the debate.
I move,
That the Parliament agrees to the general principles of the Land and Buildings Transaction Tax (Scotland) Bill.
14:46
In the same item of business
The Deputy Presiding Officer (John Scott)
Con
Good afternoon. The first item of business this afternoon is a stage 1 debate on motion S4M-06294, in the name of John Swinney, on the Land and Buildings Tra...
The Cabinet Secretary for Finance, Employment and Sustainable Growth (John Swinney)
SNP
The Scotland Act 2012 devolves responsibility for taxes on land and property transactions and disposal to landfill to the Scottish Parliament from April 2015...
Mary Scanlon (Highlands and Islands) (Con)
Con
I am a member of the Public Audit Committee, which has been looking into the Auditor General for Scotland’s report on Registers of Scotland’s IT system. Para...
John Swinney
SNP
I would describe the position as work in progress. As I set out to Parliament last June, Registers of Scotland will be the collection organisation for the ne...
Kenneth Gibson (Cunninghame North) (SNP)
SNP
I am pleased to highlight key areas that the Finance Committee considered following its stage 1 evidence taking.The Scotland Act 2012 devolves a range of tax...
Ken Macintosh (Eastwood) (Lab)
Lab
The land and buildings transaction tax is, I believe, Scotland’s first new tax in 300 years. It stems from the conclusions of the Calman commission, establis...
John Mason (Glasgow Shettleston) (SNP)
SNP
Will the member take an intervention?
Ken Macintosh
Lab
I hope that Mr Mason can demonstrate a sense of humour.
John Mason
SNP
Does the member accept that, if the overall indication is that the effect will be broadly neutral, the room for manoeuvre is not huge? The position is not th...
Ken Macintosh
Lab
Indeed. I was just about to suggest to the cabinet secretary that, if he indicates to the committee and to Parliament when he has agreed on a date, so that w...
John Swinney
SNP
The point that I advanced at the committee is that I was not persuaded by a relief for a property transaction whereby the purchaser got the benefit of an inv...
Ken Macintosh
Lab
I welcome the cabinet secretary’s approach. I have sympathy for the non-renewal of a scheme for which there were no successful applications in Scotland.Howev...
Mike MacKenzie (Highlands and Islands) (SNP)
SNP
Does the member accept that, given the progressive nature of the tax, the proposed measure would help those who are further up the ladder more? Those are the...
Ken Macintosh
Lab
Mr MacKenzie raises an interesting point about our desire as a country to reduce carbon emissions. If carbon emissions on larger homes are greater, we need t...
Gavin Brown (Lothian) (Con)
Con
The Scottish Conservatives support the general principles of the bill and we will vote for it at decision time. Much of the bill and much of what the cabinet...
John Swinney
SNP
I confirm that there will be an indication of the licences that are included in the scope. The bill will specify which licences will be covered rather than s...
Gavin Brown
Con
That is helpful, and it is probably the right way to go about it, so I am even more encouraged on licences than I was to begin with.Before I get too carried ...
The Deputy Presiding Officer
Con
We now move to the open debate. I call Jamie Hepburn, to be followed by Malcolm Chisholm. We are a bit tight for time, so I give Mr Hepburn up to six minutes...
Jamie Hepburn (Cumbernauld and Kilsyth) (SNP)
SNP
I welcome this stage 1 debate. The bill is, of course, the first of three bills arising as a consequence of the Scotland Act 2012, and I look forward to scru...
The Deputy Presiding Officer
Con
You have 30 seconds.
Jamie Hepburn
SNP
The block grant will be reduced on a one-off basis for LBTT. We have to get that right. I say to Mr Macintosh that how fairly the Treasury plays on the matte...
Malcolm Chisholm (Edinburgh Northern and Leith) (Lab)
Lab
I am pleased to take part in this landmark debate, in which we are considering a tax bill for the first time in the history of the Scottish Parliament. I hop...
Stewart Stevenson (Banffshire and Buchan Coast) (SNP)
SNP
Although it closes a loophole, on 21 March 2012, the Chancellor of the Exchequer announced that, with immediate effect, there would be a 15 per cent stamp du...
Malcolm Chisholm
Lab
That is a fair point and I would not disagree.Ensuring that there is no tax avoidance is an important aspect of the bill. The general provision, which will b...
John Mason (Glasgow Shettleston) (SNP)
SNP
It is encouraging that there is widespread welcome for the replacement of SDLT with a simpler and more progressive tax, and especially for the replacement of...
Neil Findlay (Lothian) (Lab)
Lab
Given that John Mason has expressed his excitement about today, will he express some contrition about opposing the Calman commission and the Scotland Act 201...
John Mason
SNP
That question is not quite on subject. Given that Calman proposed a system of block grant reduction that would have damaged Scotland, I have to say that I am...
Michael McMahon (Uddingston and Bellshill) (Lab)
Lab
This is not the first time I have taken part in a stage 1 debate in which there has been very little to say that has not been said already by the time I have...
Mark McDonald (North East Scotland) (SNP)
SNP
I rise as a former member of the Finance Committee. Although I was not part of the stage 1 deliberations on the Land and Buildings Transaction Tax (Scotland)...
Alison McInnes (North East Scotland) (LD)
LD
I, too, welcome today’s stage 1 debate on the first of a series of bills that are being introduced as a result of a number of tax-raising powers being devolv...