Contents
- Attendance
- Brexit (Legislative Consent)
- Subordinate Legislation
Subordinate Legislation
Land and Buildings Transaction Tax (Additional Amount-Second Homes Main Residence Relief) (Scotland) Order 2017 [Draft]
Item 2 is to consider a Scottish statutory instrument relating to the Land and Buildings Transaction Tax additional dwelling supplement. Before we come to the motion seeking our approval, at item 3, we will take evidence on the order. We are joined by Derek Mackay, Cabinet Secretary for Finance and the Constitution, and Scottish Government officials John St Clair, from the legal directorate, and Ewan Cameron-Neilson, from the fiscal responsibility division. I welcome our witnesses and invite the cabinet secretary to make an opening statement.
Thank you, convener. I aim to keep my opening remarks brief.
An additional dwelling supplement liability arises when a buyer purchases an additional dwelling in Scotland and at the end of the effective date of that transaction, when mortgage funds are cleared and keys are handed over, the buyer owns two or more dwellings and is not replacing their main dwelling. In the context of the additional dwelling supplement legislation, “replacing” means selling the previous main residence and buying a new main residence.
For the purposes of the additional dwelling supplement legislation, the Scottish Government’s policy is that a couple—by which I mean a married couple, cohabitants and civil partners—is treated as one economic unit. That is to address the risk of properties being moved between individuals for the purpose of tax avoidance.
It is also the Scottish Government’s policy intention that, when the additional dwelling supplement is paid, it can be reclaimed when a main dwelling is being replaced and the sale of the former main dwelling occurs within 18 months of the purchase of what becomes the current main dwelling.
As the additional dwelling supplement has become embedded, it has become clear that, in practice, the legislation has not worked as intended in relation to couples. Demonstrating that the Scottish Government is listening to taxpayers, the order before the committee this morning amends the legislation to address that issue for cases going forward. It does so in two respects. First, the order amends the current legislation to provide relief from additional dwelling second homes tax when couples jointly buy a dwelling-house but the dwelling-house being replaced is owned by only one of them.
The second legislative amendment provides for the scenario when the transaction for disposal of the former main dwelling owned by one of the couple is concluded after the transaction for the joint acquisition of the new main dwelling. In short, the amendment will allow for a repayment of tax paid to the couple if the disposal happens within 18 months of the joint purchase of the new main dwelling.
I am happy to answer any questions that members may have.
Thank you, cabinet secretary. You will know, because we have corresponded, that I have constituents who are affected, and I am sure that other members have similarly brought concerns to you. I warmly welcome the order—thank you for bringing it forward. I know that my constituents will be pleased to see that the unintended consequence of the legislation is being addressed. Have you any sense of how many individuals or family units in Scotland will have been affected by the issue in the period since the additional dwelling supplement was introduced?
That is difficult to quantify. In fact, I cannot quantify it, because tax returns on LBTT do not ask for the specific information that answers that question. There is no evidence to suggest that it is a large number of people but, subject to the committee and the Parliament approving the order, Revenue Scotland will work to engage with people to make them aware of it.
On Mr Fraser’s point about his constituents, the order does not resolve the matter retrospectively. That will require a further legislative mechanism that I am exploring. If that is successful, it will allow Revenue Scotland to engage with all those who have paid the tax. That should capture anyone who has been affected by the issue.
I was just going to come on to that question of the retrospective remedy. I appreciate that the order will not solve that particular problem. My constituents have already had to pay that money. While you are looking for a legislative vehicle to deal with the retrospective issue, is it possible to issue guidance to Revenue Scotland to advise them on how to address the situation when people are caught in the retrospective trap, pending legislation being brought forward, or can that not be done?
Retrospectively? Going forward, Revenue Scotland will apply what Parliament approves. It will continue to apply the strict letter of the law that is currently in place but, if the law is changed, it will apply that and look to resolve the matter in the light of the new legislation. It is not for me to advise solicitors how to do their job, but I should point out that they can give appropriate and relevant advice when they advise their clients, and I am sure that many have done so.
Do you want to expand on what you mean by that?
Not particularly. [Laughter.] I do not want to advise people to engage in any form of tax avoidance, but let us just say that different solicitors might have given different advice about how to approach the subject. What we are doing is delivering on the policy intent that I have outlined.
The policy intention of the Government is still to treat couples in one way and to treat in a different way people who have a joint mortgage because, for example, it is the only way they can afford to buy a property to live in as their main residence. Am I right in saying that there is no intention to look at that kind of situation and to address an arrangement that might be becoming more common?
This is a very specific mechanism to address what has been identified, rather than a wider point, and it looks at couples as one economic unit for the reason that has been given.
What is the reason for treating only couples as an economic unit and not, for example, two or more friends who have a joint mortgage because that is an affordable way for them to meet their housing needs?
That has not been raised with me previously, so I have not given it full consideration. The issue is about couples as economic units, minimising tax avoidance and ensuring a degree of fairness. I am happy to hear more evidence from Mr Harvie but, in the light of the communication that I have received, I want to address that very specific anomaly that has come about from an interpretation of the legislation.
So the Government might be open to looking at that in the future.
I do not want to trigger a much wider debate on what I am trying to resolve. I want to be clear and focused on the remedy that I am proposing today in returning to the issue and addressing it retrospectively. The order is very specifically about the issue that has been raised with us by the Law Society of Scotland and a number of MSPs. I am happy to respond swiftly to the correspondence that I have received to resolve the matter. If Mr Harvie wants to raise that issue with me, I will happily engage with it and have a further discussion with him, if that would be helpful.
On a point of clarity, the issue is about a policy intention that, for whatever reason, was not actioned correctly, so there is a group of people who have paid tax in good faith but who should not have done so. Presumably, assuming that the order goes through, a considerable amount of resource will need to be devoted to identifying those people and to making sure that they are refunded the tax that they should not have paid. Is that correct?
Yes. Revenue Scotland will undertake that work.
It will presumably be given a due level of importance to ensure that people who have inadvertently paid are recompensed.
That is correct.
As there are no other questions, we move to item 3, which is formal consideration of motion S5M-05994 on the order.
Motion moved,
That the Finance and Constitution Committee recommends that the Land and Buildings Transaction Tax (Additional Amount-Second Homes Main Residence Relief) (Scotland) Order 2017 [draft] be approved.—[Derek Mackay]
Motion agreed to.
The committee will publish a short report to the Parliament that sets out our decision on the order.
That was the final piece of business on our agenda. The next meeting will be the final meeting of the committee before the summer recess, and we will take evidence from the Minister for UK Negotiations on Scotland’s Place in Europe on issues that are related to Brexit.
Meeting closed at 11:39.
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