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 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 taxation and borrowing measures: powers to borrow for capital projects; powers to set a Scottish rate of income tax to replace a 10p in the pound income tax reduction for Scottish taxpayers across all bands; and powers to set taxes on land transactions and disposal to landfill.
The Landfill Tax (Scotland) Bill was introduced last week and the tax management bill will be introduced later this year. The Land and Buildings Transaction Tax (Scotland) Bill provides for the rules and structure of LBTT as a tax levied on anyone buying, leasing or taking rights—such as options to buy—over land and property. It covers residential and non-residential transactions, including the purchase, lease or licence of options over commercial properties such as shops, offices, factories, land for development and agricultural or forestry land.
Our report identifies issues that emerged from the evidence that was given. I will first highlight tax bands and rates.
The Scottish Government will replace the slab structure of stamp duty land tax—a tax that is to be disapplied under the Scotland Act 2012—with a progressive structure, which will include a nil rate band and at least two others.
Witnesses supported that approach. For example, the Edinburgh Solicitors Property Centre is
“fully supportive of LBTT being a progressive tax”.—[Official Report, Finance Committee, 6 February 2013; c 2197.]
The Council of Mortgage Lenders Scotland said:
“While there would be winners and losers out of any new system we believe a progressive system would be more equitable and overcome some of the inefficiencies created by the slab system.”
The bill team commented:
“The considerations that ministers will take into account will include the expected amount of revenue to be raised”,
and said that
“the volatility of receipts from stamp duty land tax in Scotland over the past few years will be a factor in ministers’ consideration of how to set rates and thresholds.”—[Official Report, Finance Committee, 23 January 2013; c 2087.]
The committee supports the introduction of a progressive structure.
Some witnesses expressed concerns about how far in advance of its introduction on 1 April 2015 the level of LBTT would be known. That is particularly relevant in respect of commercial property transactions, on which some witnesses argued there could be a risk of discouraging investment.
Our report highlights the fact that the cabinet secretary is not persuaded of the need to provide too much advance notice and that, as he indicated a few minutes ago, even giving notice in next year’s draft budget may be too early. We recognise the range of views on the timing of the announcement of rates and bands and ask the Scottish Government to consider likely implications for the commercial property market.
Regarding scrutiny of the proposed bands and rates, the Subordinate Legislation Committee can see no reason why, if the affirmative procedure is required for the initial use of the power to set them, the same level of scrutiny should not be required for the use of the power thereafter. It also identifies the procedural option that is available should there be a need to act quickly in response to changing market conditions.
I note that the cabinet secretary intends to introduce stage 2 amendments to provide a form of provisional affirmative procedure after the first occasion on which the bands and rates are set.
In its consultation on the tax management bill, which covers issues that are applicable to each tax such as collection, the use of information, penalties for late payment and tax evasion, the Scottish Government states:
“SDLT … has been subject to sustained and aggressive tax avoidance. There is a risk that LBTT could be subject to similar activity.”
The policy memorandum on the Land and Buildings Transactions (Scotland) Bill states:
“all transactions involving land or buildings in Scotland should be liable for LBTT, except in certain limited and specific circumstances set out in legislation.”
The cabinet secretary has said, and he repeated today, that he wants to take a vigorous approach to tax avoidance, and that he will use two different types of anti-avoidance rules. Witnesses broadly supported that approach. There will be an effective general anti-avoidance rule in the tax management bill, and there are targeted anti-avoidance rules in the LBTT bill. The bill team commented on the use of and exemptions from tax relief and on how the Scottish Government has sought to minimise avoidance.
The committee considered in detail the absence of sub-sale relief from the bill. The Scottish Government thinks that the sub-sale rules
“act as a gateway to a significant amount of avoidance activity.”
Some witnesses challenged that. Pinsent Masons said:
“There are numerous circumstances where an organisation might legitimately seek to acquire land and then move it on quickly”,
and went on to say:
“It should be entirely possible to develop subsale relief provisions which protect tax revenues from unacceptable avoidance while retaining the economic benefits which the relief facilitates.”
Some witnesses suggested that removal of sub-sale relief would impact on forward funding arrangements, where three parties—the vendor, the property developer and an institutional investor—are involved in the development of a property. Brodies argued that although sub-sale relief has been used to avoid paying SDLT, it has also facilitated development. Brodies thought that, in the absence of sub-sale relief, Scottish developers could face higher costs than developers in the rest of the United Kingdom and concluded:
“such proposals for higher taxation cannot be justified or supported.”
The Scottish Government gave two reasons for excluding sub-sale relief from the bill. The first was:
“although we accept that a piece of land can be bought and sold twice on the same day for perfectly legitimate commercial reasons ... we were not persuaded that there was an obvious case for relieving one of the sets of transactions from tax”.
The second reason was:
“sub-sale relief has become an avenue for avoidance of quite substantial amounts of stamp duty land tax across the UK. We were anxious to limit opportunities for tax avoidance.”—[Official Report, Finance Committee, 23 January 2013; c 2088-9.]
The cabinet secretary told the committee:
“I have not come to a final decision on sub-sale relief.”—[Official Report, Finance Committee, 27 February 2013; c 2312.]
However, today he announced that he has come to a decision. He also distinguished between sub-sale relief and forward funding, expressing a desire to tackle tax avoidance without adversely impacting on economic growth. The committee welcomes that distinction.
The cabinet secretary told the committee:
“I am not minded to bring forward targeted relief, but my mind is not fixed on that and I will wait until the committee reports in that respect.”—[Official Report, Finance Committee, 27 February 2013; c 2312.]
If sub-sale relief were to be accommodated, Registers of Scotland would be prepared to build functionality in that regard into the system and manage it. However, the committee supported the removal of sub-sale relief from LBTT, on the basis that the necessary amendments will be lodged at stage 2 to ensure that forward funding or other legitimate arrangements are not subject to double taxation.
The roles of revenue Scotland and Registers of Scotland are key to the efficient management and collection of LBTT. Revenue Scotland, the tax authority for LBTT and the landfill tax, will be established as a non-ministerial department, which will be accountable to this Parliament rather than to ministers. Its structure, functions and so on will be developed under the tax management bill.
Revenue Scotland’s establishment was welcomed, as was the role of ROS in collecting LBTT. However, as the bill team said:
“Resourcing is important and we are giving it a lot of thought.”—[Official Report, Finance Committee, 23 January 2013; c 2092.]
The Law Society of Scotland said:
“It is essential that the new online system for LBTT is ready in sufficient time for it to be adequately tested by practitioners and for guidance to be prepared well before April 2015.”
I note that, in response to Mary Scanlon, the cabinet secretary said that that is work in progress.
Concern was expressed about the readiness and suitability of the IT infrastructure. There was concern about the robustness, speed and ease of use of the automated registration of title to land system and about the need to replace it with a fully operational system that has been tested by external users as well as by ROS. There is clearly a role for the Scottish Government in providing efficient oversight and management in that regard. The cabinet secretary is confident that ROS will deliver the necessary IT infrastructure, and ROS thinks that the funding will be sufficient to design and build a new system, with “sufficient contingency”.
On information and guidance to taxpayers, provision is made in the financial memorandum to cover costs in relation to staffing, printing and communication and a helpline. The definition of roles and responsibilities is important in ensuring that people know whom to approach for advice and assistance. Well-trained specialist staff and full and accessible guidance will be crucial.
Clarity on compliance activity, with revenue Scotland producing milestones and dates for key deliverables, is important. We will monitor and scrutinise the implementation and delivery of LBTT through progress reports from both bodies.
On transitional arrangements, costs will arise from work to enable systems to be switched off and from communications, including publicity and guidance.
The Office for Budget Responsibility has responsibility for forecasting receipts for the Scottish rate of income tax, SDLT and landfill tax on a six-monthly basis, alongside its economic and fiscal outlook. It has provided forecasts for Scottish taxes to 2017-18 and specific forecasts for SDLT to 2016-17.
The financial memorandum states:
“It is reasonable to assume that receipts from LBTT will be equivalent to those from SDLT at present and the block grant adjustment will be broadly equal to the level of SDLT receipts.”
Homes for Scotland expressed concerns about the strength of the housing market and believes that
“significant change is unlikely in the coming years.”—[Official Report, Finance Committee, 30 January 2013; c 2162.]
The Scottish Property Federation believes the OBR forecasts to be “wildly optimistic.” It suggests that the Scottish Government “digs in its heels” when negotiating the SDLT block grant adjustment with Her Majesty’s Treasury.
There will be a one-off reduction in the block grant. The cabinet secretary suggests that, given the volatility in SDLT receipts, the fairest and most reliable means of calculating the size of the reduction would be to calculate a five-year receipt average using actual rather than forecast data when calculating the adjustment, given that
“the forward estimating of SDLT is very difficult”—[Official Report, Finance Committee, 27 February 2013; c 2328.]
and that OBR forecasts have already been significantly revised.
The committee is taking evidence on the block grant adjustment and will report before the end of May to help inform discussions of the Joint Exchequer Committee.
The committee has assessed and reflected carefully on the evidence and supports the general principles of the bill. It will now aim to monitor closely the implementation and delivery of LBTT.
Given the time allowed, I have not talked about charities, but I know that colleagues have raised the matter in committee extensively and will do so again in their speeches today.
At stage 2, we will consider issues surrounding sub-sale relief, forward funding and non-residential leases. Given the very technical nature of the amendments that we expect, we are keen to see them as early in the stage 2 process as possible. We greatly appreciate the efforts of the bill team and the cabinet secretary in that regard.
14:56
The Scotland Act 2012 devolves a range of taxation and borrowing measures: powers to borrow for capital projects; powers to set a Scottish rate of income tax to replace a 10p in the pound income tax reduction for Scottish taxpayers across all bands; and powers to set taxes on land transactions and disposal to landfill.
The Landfill Tax (Scotland) Bill was introduced last week and the tax management bill will be introduced later this year. The Land and Buildings Transaction Tax (Scotland) Bill provides for the rules and structure of LBTT as a tax levied on anyone buying, leasing or taking rights—such as options to buy—over land and property. It covers residential and non-residential transactions, including the purchase, lease or licence of options over commercial properties such as shops, offices, factories, land for development and agricultural or forestry land.
Our report identifies issues that emerged from the evidence that was given. I will first highlight tax bands and rates.
The Scottish Government will replace the slab structure of stamp duty land tax—a tax that is to be disapplied under the Scotland Act 2012—with a progressive structure, which will include a nil rate band and at least two others.
Witnesses supported that approach. For example, the Edinburgh Solicitors Property Centre is
“fully supportive of LBTT being a progressive tax”.—[Official Report, Finance Committee, 6 February 2013; c 2197.]
The Council of Mortgage Lenders Scotland said:
“While there would be winners and losers out of any new system we believe a progressive system would be more equitable and overcome some of the inefficiencies created by the slab system.”
The bill team commented:
“The considerations that ministers will take into account will include the expected amount of revenue to be raised”,
and said that
“the volatility of receipts from stamp duty land tax in Scotland over the past few years will be a factor in ministers’ consideration of how to set rates and thresholds.”—[Official Report, Finance Committee, 23 January 2013; c 2087.]
The committee supports the introduction of a progressive structure.
Some witnesses expressed concerns about how far in advance of its introduction on 1 April 2015 the level of LBTT would be known. That is particularly relevant in respect of commercial property transactions, on which some witnesses argued there could be a risk of discouraging investment.
Our report highlights the fact that the cabinet secretary is not persuaded of the need to provide too much advance notice and that, as he indicated a few minutes ago, even giving notice in next year’s draft budget may be too early. We recognise the range of views on the timing of the announcement of rates and bands and ask the Scottish Government to consider likely implications for the commercial property market.
Regarding scrutiny of the proposed bands and rates, the Subordinate Legislation Committee can see no reason why, if the affirmative procedure is required for the initial use of the power to set them, the same level of scrutiny should not be required for the use of the power thereafter. It also identifies the procedural option that is available should there be a need to act quickly in response to changing market conditions.
I note that the cabinet secretary intends to introduce stage 2 amendments to provide a form of provisional affirmative procedure after the first occasion on which the bands and rates are set.
In its consultation on the tax management bill, which covers issues that are applicable to each tax such as collection, the use of information, penalties for late payment and tax evasion, the Scottish Government states:
“SDLT … has been subject to sustained and aggressive tax avoidance. There is a risk that LBTT could be subject to similar activity.”
The policy memorandum on the Land and Buildings Transactions (Scotland) Bill states:
“all transactions involving land or buildings in Scotland should be liable for LBTT, except in certain limited and specific circumstances set out in legislation.”
The cabinet secretary has said, and he repeated today, that he wants to take a vigorous approach to tax avoidance, and that he will use two different types of anti-avoidance rules. Witnesses broadly supported that approach. There will be an effective general anti-avoidance rule in the tax management bill, and there are targeted anti-avoidance rules in the LBTT bill. The bill team commented on the use of and exemptions from tax relief and on how the Scottish Government has sought to minimise avoidance.
The committee considered in detail the absence of sub-sale relief from the bill. The Scottish Government thinks that the sub-sale rules
“act as a gateway to a significant amount of avoidance activity.”
Some witnesses challenged that. Pinsent Masons said:
“There are numerous circumstances where an organisation might legitimately seek to acquire land and then move it on quickly”,
and went on to say:
“It should be entirely possible to develop subsale relief provisions which protect tax revenues from unacceptable avoidance while retaining the economic benefits which the relief facilitates.”
Some witnesses suggested that removal of sub-sale relief would impact on forward funding arrangements, where three parties—the vendor, the property developer and an institutional investor—are involved in the development of a property. Brodies argued that although sub-sale relief has been used to avoid paying SDLT, it has also facilitated development. Brodies thought that, in the absence of sub-sale relief, Scottish developers could face higher costs than developers in the rest of the United Kingdom and concluded:
“such proposals for higher taxation cannot be justified or supported.”
The Scottish Government gave two reasons for excluding sub-sale relief from the bill. The first was:
“although we accept that a piece of land can be bought and sold twice on the same day for perfectly legitimate commercial reasons ... we were not persuaded that there was an obvious case for relieving one of the sets of transactions from tax”.
The second reason was:
“sub-sale relief has become an avenue for avoidance of quite substantial amounts of stamp duty land tax across the UK. We were anxious to limit opportunities for tax avoidance.”—[Official Report, Finance Committee, 23 January 2013; c 2088-9.]
The cabinet secretary told the committee:
“I have not come to a final decision on sub-sale relief.”—[Official Report, Finance Committee, 27 February 2013; c 2312.]
However, today he announced that he has come to a decision. He also distinguished between sub-sale relief and forward funding, expressing a desire to tackle tax avoidance without adversely impacting on economic growth. The committee welcomes that distinction.
The cabinet secretary told the committee:
“I am not minded to bring forward targeted relief, but my mind is not fixed on that and I will wait until the committee reports in that respect.”—[Official Report, Finance Committee, 27 February 2013; c 2312.]
If sub-sale relief were to be accommodated, Registers of Scotland would be prepared to build functionality in that regard into the system and manage it. However, the committee supported the removal of sub-sale relief from LBTT, on the basis that the necessary amendments will be lodged at stage 2 to ensure that forward funding or other legitimate arrangements are not subject to double taxation.
The roles of revenue Scotland and Registers of Scotland are key to the efficient management and collection of LBTT. Revenue Scotland, the tax authority for LBTT and the landfill tax, will be established as a non-ministerial department, which will be accountable to this Parliament rather than to ministers. Its structure, functions and so on will be developed under the tax management bill.
Revenue Scotland’s establishment was welcomed, as was the role of ROS in collecting LBTT. However, as the bill team said:
“Resourcing is important and we are giving it a lot of thought.”—[Official Report, Finance Committee, 23 January 2013; c 2092.]
The Law Society of Scotland said:
“It is essential that the new online system for LBTT is ready in sufficient time for it to be adequately tested by practitioners and for guidance to be prepared well before April 2015.”
I note that, in response to Mary Scanlon, the cabinet secretary said that that is work in progress.
Concern was expressed about the readiness and suitability of the IT infrastructure. There was concern about the robustness, speed and ease of use of the automated registration of title to land system and about the need to replace it with a fully operational system that has been tested by external users as well as by ROS. There is clearly a role for the Scottish Government in providing efficient oversight and management in that regard. The cabinet secretary is confident that ROS will deliver the necessary IT infrastructure, and ROS thinks that the funding will be sufficient to design and build a new system, with “sufficient contingency”.
On information and guidance to taxpayers, provision is made in the financial memorandum to cover costs in relation to staffing, printing and communication and a helpline. The definition of roles and responsibilities is important in ensuring that people know whom to approach for advice and assistance. Well-trained specialist staff and full and accessible guidance will be crucial.
Clarity on compliance activity, with revenue Scotland producing milestones and dates for key deliverables, is important. We will monitor and scrutinise the implementation and delivery of LBTT through progress reports from both bodies.
On transitional arrangements, costs will arise from work to enable systems to be switched off and from communications, including publicity and guidance.
The Office for Budget Responsibility has responsibility for forecasting receipts for the Scottish rate of income tax, SDLT and landfill tax on a six-monthly basis, alongside its economic and fiscal outlook. It has provided forecasts for Scottish taxes to 2017-18 and specific forecasts for SDLT to 2016-17.
The financial memorandum states:
“It is reasonable to assume that receipts from LBTT will be equivalent to those from SDLT at present and the block grant adjustment will be broadly equal to the level of SDLT receipts.”
Homes for Scotland expressed concerns about the strength of the housing market and believes that
“significant change is unlikely in the coming years.”—[Official Report, Finance Committee, 30 January 2013; c 2162.]
The Scottish Property Federation believes the OBR forecasts to be “wildly optimistic.” It suggests that the Scottish Government “digs in its heels” when negotiating the SDLT block grant adjustment with Her Majesty’s Treasury.
There will be a one-off reduction in the block grant. The cabinet secretary suggests that, given the volatility in SDLT receipts, the fairest and most reliable means of calculating the size of the reduction would be to calculate a five-year receipt average using actual rather than forecast data when calculating the adjustment, given that
“the forward estimating of SDLT is very difficult”—[Official Report, Finance Committee, 27 February 2013; c 2328.]
and that OBR forecasts have already been significantly revised.
The committee is taking evidence on the block grant adjustment and will report before the end of May to help inform discussions of the Joint Exchequer Committee.
The committee has assessed and reflected carefully on the evidence and supports the general principles of the bill. It will now aim to monitor closely the implementation and delivery of LBTT.
Given the time allowed, I have not talked about charities, but I know that colleagues have raised the matter in committee extensively and will do so again in their speeches today.
At stage 2, we will consider issues surrounding sub-sale relief, forward funding and non-residential leases. Given the very technical nature of the amendments that we expect, we are keen to see them as early in the stage 2 process as possible. We greatly appreciate the efforts of the bill team and the cabinet secretary in that regard.
14:56
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...