Committee
Finance Committee 14 September 2016
14 Sep 2016 · S5 · Finance Committee
Item of business
Land and Buildings Transaction Tax
Isobel d’Inverno
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In relation to LBTT on commercial property, there is a bit of the legislation that seems to have a very odd effect when it comes to sub-sales. A sub-sale is when A sells to B and B sells to C and both transactions complete at the same time. With SDLT, the person in the middle does not have to pay, because there is a general sub-sale relief, but with LBTT there is not. We respect the policy aim, which is to avoid avoidance—I did not put that very elegantly. No general sub-sale relief was provided because of the avoidance concern. However, the legislation seems to say that, in a sub-sale in Scotland, B has to pay LBTT when he enters into the onward sale contract, not when the two contracts complete. We think that that just does not make any sense and needs to be amended. It does not seem to be appropriate that someone should have to pay LBTT at that early stage, and that then feeds into the issue of sub-sale development relief—it makes it difficult to see how that works. We also think that some changes need to be made in other areas to do with the additional dwelling supplement. For example, when someone buys a mixture of residential and non-residential property, the way in which the calculations work means that they end up paying a bit of additional dwelling supplement on the commercial property. That makes no sense at all, given that the additional dwelling supplement is supposed to relate to residential property and should not be paid on the commercial part of a mixed purchase. We also think that other aspects of the additional dwelling supplement need to be tidied up. When people inherit property, for example, it is not entirely clear at what stage that starts to count. Does that happen when the person dies, when confirmation happens or at some other time? There are quite a few such areas. In addition, there is the dreaded partnership legislation, which is appalling and needs to be fixed at some stage. For all those reasons, we think that it would be a good idea if there was a biennial tax bill process in the Scottish Parliament, because it would provide an opportunity to make such changes without having to fight for legislative time. As we are only at the beginning of the tax-making process in Scotland, we think that it is important to get such an arrangement into the parliamentary process, and we ask the Finance Committee to consider that. I know that a review group is being set up to look at the whole budgetary process. To some extent, making good tax legislation depends on having enough time to consider it. The timescale for the Land and Buildings Transaction Tax (Amendment) (Scotland) Bill—the bill that brought in the additional dwelling supplement—was very short, and that is not the right way to get good legislation. There simply was not enough time to address some of the points that needed to be addressed.
In the same item of business
The Convener (Bruce Crawford)
SNP
Good morning and a warm welcome to the fourth meeting in 2016 of the Finance Committee. I would be grateful if everyone could check whether they have switche...
Charlotte Barbour (Institute of Chartered Accountants of Scotland)
Thank you for inviting us to give evidence. I will just make one or two points as an overall opening statement. The fact that I have not had a great deal of ...
Isobel d’Inverno (Law Society of Scotland)
Thanks very much for inviting us to give evidence. The impression of all Law Society members of the first year of LBTT is that it has worked well. We are imp...
The Convener
SNP
The Law Society’s submission states: “LBTT has undoubtedly been beneficial for first time buyers”. Overall, LBTT revenues surpassed the forecast made in th...
Isobel d’Inverno
The anecdotal evidence that we are getting from our members is that LBTT has helped first-time buyers. The lower rates at the bottom end have definitely been...
Charlotte Barbour
We do not have a lot of feedback on that kind of point because our members are not key to buying and selling residential property. Like the Law Society, thou...
Adam Tomkins (Glasgow) (Con)
Con
Are there any generalities arising from the non-residential operation of LBTT so far?
Isobel d’Inverno
In general, the non-residential side of LBTT has worked well. Some things, such as the lack of general sub-sale relief, still cause a bit of difficulty in so...
Charlotte Barbour
We have had similar feedback.
The Convener
SNP
You also mention in your submissions potential changes in the legislation. That is a more technical aspect, but that is why we are taking evidence from you. ...
Isobel d’Inverno
In relation to LBTT on commercial property, there is a bit of the legislation that seems to have a very odd effect when it comes to sub-sales. A sub-sale is ...
Charlotte Barbour
I echo those sentiments about a desire to get a process through which we can get things fixed. In our submission, we mention a couple of smaller, technical p...
The Convener
SNP
But if you were getting the guidance that you might have expected from Revenue Scotland in the same way that HMRC provides guidance, some of that fix could g...
Charlotte Barbour
That could happen if what we were talking about was not specifically in the legislation. If the legislation does not allow it, Revenue Scotland cannot allow it.
Isobel d’Inverno
That is obviously the problem with relying on guidance. We do not want to be taxed by statute and untaxed by concession or by guidance.
The Convener
SNP
I like that description.
Isobel d’Inverno
It is much better if the legislation can say what the Government wants it to say. Inevitably with complex legislation such as this, unforeseen consequences w...
Murdo Fraser (Mid Scotland and Fife) (Con)
Con
Good morning. I remind members of my entry in the members’ register of interests and declare that I am a member of the Law Society of Scotland. I want to pu...
Isobel d’Inverno
The Law Society does not have accurate figures for the number of properties that are being bought at different market levels, but anecdotal evidence seems to...
Charlotte Barbour
ICAS does not collect any statistics—our feel for the situation is based purely on anecdotal evidence from some of our members. It probably reflects what Iso...
Murdo Fraser
Con
That is an interesting suggestion from the witnesses, and the committee could perhaps follow up on it. I have a subsequent question for Isobel d’Inverno. We...
Isobel d’Inverno
It probably contributed to that reduction. We do not have any specific evidence to that effect, but when we crunch the numbers, the suggestion is that that m...
Murdo Fraser
Con
Is it your view that a reduction in the rates of LBTT at the top end might actually raise more revenue by stimulating the market?
Isobel d’Inverno
I am not an economist; I do not have particular expertise in that area, and nor does the Law Society. However, people have suggested that it would help to un...
The Convener
SNP
It is probably fair to point out that the Royal Institution of Chartered Surveyors said that, before any changes are made, we need to get the research done a...
Isobel d’Inverno
Absolutely.
The Convener
SNP
Do you agree with that position?
Isobel d’Inverno
Yes, absolutely. It is very difficult to unravel all the different factors that have been at play in this first year; as has been mentioned, there is the for...
The Convener
SNP
Going back to Murdo Fraser and the way he responded—quite rightly—to Isobel d’Inverno’s point about the breakdown of the residential elements in particular a...
Alex Johnstone (North East Scotland) (Con)
Con
To go back to a point that was mentioned a moment ago, we have heard that there is more activity at the lower end of the market—the first-time buyer element—...