Hansard

I am pleased to open the debate on the general principles of the Land and Buildings Transaction Tax (Amendment) (Scotland) Bill, which I introduced on 27 January this year. I begin by thanking all those who gave evidence—written and oral—to the Finance Committee and those, such as the Law Society of Scotland and Revenue Scotland, who have given and continue to give freely of their time to work collaboratively with the bill team to resolve some of the more thorny technical matters in order to ensure, as far as practical, the bill’s smooth implementation.

I am grateful to the convener and members of the Finance Committee for their scrutiny of the bill at stage 1 and particularly for committee members’ co-operation in working to an expedited timetable for the bill. I welcome the committee’s support for the general principles of the bill. In light of the expedited bill timetable, I wrote yesterday to the convener of the Finance Committee setting out the Scottish Government’s response to the committee’s stage 1 report. I hope that it was helpful to have that response in advance of the debate.

The Land and Buildings Transaction Tax (Amendment) (Scotland) Bill introduces a 3 per cent land and buildings transaction tax supplement payable on the purchase of additional dwellings, such as buy-to-let or second homes. Subject to parliamentary approval, that means that, from 1 April 2016, anyone buying a residential property in Scotland of £40,000 and above who already owns a residential property, here or anywhere in the world, will pay an additional 3 per cent land and buildings transaction tax on the whole purchase price of the property, unless they are simply replacing their existing main residence.

The Scottish Government wishes to maximise the opportunities for first-time buyers to get a foot on the property ladder in Scotland. The bill will counteract the potential distortive effect of the introduction of a new stamp duty land tax higher rate of tax in the rest of the United Kingdom from 1 April 2016. Without a land and buildings transaction tax supplement, it is likely that the stamp duty land tax higher rate of tax would make it relatively more attractive for investors to buy up homes in Scotland, particularly at the lower end of the market, thus increasing competition for first-time buyers and therefore the danger of undermining the Scottish Government’s policy objectives in this area. The Government’s motivation has therefore been clearly expressed to deal with circumstances that we believe are made more likely by the tax changes that are being made in the rest of the United Kingdom.

I am aware from the evidence that was presented to the Finance Committee during its stage 1 scrutiny of the bill that some stakeholders have expressed disappointment at the 3 per cent supplement that applies to the whole purchase price, and that they view that as a return to a form of slab tax, which prevailed in the former stamp duty land tax in Scotland. As I have already indicated, the Scottish Government wishes to do all that it can to empower first-time buyers to purchase their first home. The rationale for applying the supplement to the whole purchase price is that it will impose a greater tax charge on purchases of additional property at lower-value transactions. That is where the demand for properties for investment purchases or holiday homes could make it difficult for first-time buyers to enter the market to purchase a main residence. For example, someone who buys a property as their main residence for £100,000 will not pay any land and buildings transaction tax, but someone who buys the same property for an investment or as a second home will pay £3,000.

As I indicated in my statement on the draft budget last December, it is estimated that the supplement will raise between £17 million and £29 million in 2016-17 after taking account of behavioural effects, including any impact on underlying LBTT revenues. The Scottish Fiscal Commission has endorsed the estimate as reasonable, recognising the uncertainties that are posed by the lack of Scottish data on such transactions. I have discussed those issues with the Finance Committee, and the Government has erred on the side of caution in estimating the volume of revenues that could arise from the tax change, given the potential behavioural implications of the application of the tax charge.

The Scottish Government considers that the housing system should cater for a variety of needs and demands across all tenures. I certainly recognise the need to balance support for home ownership and first-time buyers without discouraging significant and beneficial investment in residential property for rent. The Scottish Government has supported the purpose-built private rented sector since 2013; we funded the “Building the Rented Sector in Scotland” study; and we provided funding for a dedicated private rented sector champion tasked with ensuring that action is taken to boost the supply of high-quality private rented sector homes at scale.

After reviewing and reflecting on the stage 1 evidence, I am pleased to say that the Scottish Government concurs with the recommendation in the Finance Committee’s stage 1 report that provision should be made in the bill for a relief from the land and buildings transaction tax supplement for buyers who are purchasing six or more residential properties in one transaction. The Scottish Government intends to lodge a stage 2 amendment to give effect to that.

On reliefs in general, I note from reviewing the stage 1 evidence that there are suggestions for a variety of reliefs from the supplement. The Scottish Government recognises that the housing market changes over time and, where practical and affordable, it wishes to do what it can to create sound and sustainable market conditions. However, I am firmly of the view that, as with the land and buildings transaction tax system, a period of time will be required to enable the land and buildings transaction tax supplement to become embedded and for sufficient financial and statistical data to be collected to enable informed policy decisions to be made in the future. The position on reliefs with particular reference to the land and buildings transaction tax supplement will be kept under review as part of the on-going process of devolved tax planning and management. However, I hope that the specific relief that I have set out in relation to the bulk purchase of properties gives further clarity to the marketplace and can enable commitments to be made, with the assurance that I have given.

When I gave oral evidence to the Finance Committee, I did not close the door on implementing a grace period for transactions. I have carefully reviewed the stage 1 evidence and considered further helpful input from the Law Society of Scotland and Revenue Scotland. I am not convinced of the strength of that evidence as yet, but I do not want to entirely close the door on implementing a grace period.

The approach that I have elected to take is to ask Revenue Scotland to monitor the position between the LBTT supplement provisions coming into force and 30 October 2016. The data that is collected will enable the Scottish Government to take an informed view as to the need or otherwise for a grace period and what such a period should be. There are provisions in the bill that enable individuals to claw back charges that may have been applied over an 18-month period. I hope that that provides sufficient reassurance to Parliament, but I reiterate that I remain open to considering the matter in due course.

I am aware that a number of stakeholders have called for an early and comprehensive review of the impact of the supplement. I welcome the Finance Committee’s comment in its stage 1 report that

“developing an understanding of the impact of the supplement will be complex and will take time.”

I concur with that view. To review the impact of the supplement will require at least one complete year of data, given the seasonality of housing transactions, the likely forestalling behaviours and the longer-term trends in the housing market. The Scottish Government intends to update Parliament on the outcome of that review in the 2018-19 draft budget, in accordance with our undertaking in the written agreement on the budget process to provide

“a commentary on outturn figures for the devolved taxes for the most recent year, including any variance between outturn and forecasts.”

The bill as introduced proposes that the supplement will not apply to the purchase of a residential property where missives were concluded before 16 December 2015—the date of the Scottish draft budget statement—even when the transaction does not settle until after 1 April 2016. Where the missives for the transaction were concluded on or after 16 December 2015, the supplement is proposed to apply if the transaction settles on or after 1 April 2016.

The Scottish Government has listened carefully to the stakeholder community and intends to lodge an amendment at stage 2 whereby the supplement will not apply to the purchase of a residential property where missives were concluded before 28 January 2016 but the transaction does not settle until on or after 1 April 2016. That adjustment delivers a fairer result for buyers who may have been putting in offers for property or making reservations for new-build property before the detail of the proposed supplement was in the public domain—that is, when the bill and accompanying documents were published on the Scottish Parliament’s website.

I move,

That the Parliament agrees to the general principles of the Land and Buildings Transactions Tax (Amendment) (Scotland) Bill.