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Finance Committee 22 May 2013

22 May 2013 · S4 · Finance Committee

Item of business

Land and Buildings Transaction Tax (Scotland) Bill: Stage 2

Swinney, John SNP Perthshire North Watch on SPTV

Thank you, convener. I welcome the steps that are being taken to proceed with stage 2 of the bill. We have made substantial progress on considering issues in the bill that were raised at stage 1 and in the parliamentary debate on 25 April and, as the committee will be considering those issues as we move through stage 2, I would like to address some of them.First of all, I pay tribute to the work of the non-residential leases working group, which has been meeting in parallel with stage 1 consideration of the bill. As the committee will be aware, the group examined a range of options for the taxation of non-residential leases against a number of criteria and, after considering the group’s evidence on each of the options, I met it to discuss and identify the best way forward. Since then, the working group has provided invaluable assistance to officials in preparing provisions on the taxation of non-residential leases that will better align LBTT with Scots property law and practice and it has considered and agreed a comprehensive approach to a whole range of issues affecting the taxation of leases that will be reflected in the amendments that I propose to lodge for stage 2.I was delighted to note that in its formal stage 2 evidence to the committee the Law Society of Scotland supports the chosen approach on the grounds that it“should remove the many complexities which bedevil the SDLT lease code.”First, on partnerships and trusts, the provisions in the bill that cover the taxation of transactions involving partnerships broadly mirror those for stamp duty land tax. Although the provisions are complex, they have been working in practice for some years now. We had hoped to undertake a thorough review of the provisions with a view to simplifying the bill but, after carefully examining the issues, we found that even apparently minor changes might give rise to a significant risk of unintended consequences and unpredicted outcomes that would not be in the interests of either the taxpayer or the tax authority.It has not proved possible to review the partnership provisions and discuss detailed proposals with stakeholders prior to stage 2. Although we will propose minor amendments to the provisions, any major review will have to wait until later. I note the issues that have been raised in this respect, particularly by the Law Society, and I will look carefully at the proposal to establish a working group to consider taxation of partnerships.Secondly, on the energy efficiency proposals, a number of members noted during the stage 1 debate the existing homes alliance’s proposal to link the amount of LBTT paid in residential transactions to the average energy efficiency rating for housing in Scotland. Given the issue’s importance and our strong support for improving energy efficiency, I have given very careful consideration to the proposals that have been discussed. In doing so, I have sought to balance the need for a simple, certain and efficient tax system with the likely improvements to energy efficiency that would flow from the change proposed to calculating the tax liability on the sale of residential property. I believe that the proposal would add considerably to the complexity of the tax, because additional information would be required to calculate the liability. That information might change over time and, with every house sale transaction, would have to be checked carefully for reliability and accuracy. Moreover, although I support the proposal’s objectives, I could not see how it would have a direct positive impact on the energy efficiency of Scotland’s housing stock. Against that background, I welcome the interest and enthusiasm that have surrounded the introduction of the proposal but I confirm to the committee that I do not intend to take it forward in the bill process.Thirdly, on the setting of tax rates and bands for residential transactions, I understand the Edinburgh Solicitors Property Centre’s view that the time between the announcement of the tax rates and bands and the introduction of the tax itself should be short to avoid any freezing of the market. Other factors that should be considered include arrangements for introducing the new tax, testing systems and communicating with taxpayers and their agents. I have also carefully considered the views of witnesses who were looking for earlier certainty on tax rates and bands for non-residential property transactions. The property development industry is key to Scotland’s continued economic prosperity and I am keen to do what I can to support the issues that it has raised. My discussions with stakeholders on the optimum time for setting out the tax rates and bands are on-going and I will clarify my thinking to the committee as the bill progresses.On sub-sale relief, in my closing remarks in the stage 1 debate I committed to further exploring options to ensure that the property development industry in Scotland was treated fairly following my decision, supported by the committee, not to replicate stamp duty land tax sub-sale rules, which have been the subject of aggressive avoidance activity. Since then, I have met industry representatives, who have provided a range of suggestions on how we might proceed. Discussions are continuing and I will keep the committee updated on what is happening. Essentially, I am trying to balance, on the one hand, providing the development industry with the ability to structure transactions in a fashion that meets their requirements and, on the other hand, preventing the creation of opportunities for tax avoidance. Preventing tax avoidance has been one of the bill’s hallmarks and I do not wish to undermine the bill’s strength and reputation in that respect. I am weighing up and balancing those two considerations at this stage.Finally, I want to thank the wide range of stakeholders who have significantly assisted the Government in this very complex policy area and look forward to continuing that consultation and dialogue with them and with the committee into the bargain.

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Finance Committee 22 May 2013

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