Finance and Public Administration Committee [Draft]

Meeting date: Tuesday, February 6, 2024

Official Report 788KB pdf

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Subordinate Legislation

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Land and Buildings Transaction Tax (Miscellaneous Amendments) (Scotland) Order 2024 [Draft]

Good morning, and welcome to the seventh meeting in 2024 of the Finance and Public Administration Committee.

Agenda item 1 is an evidence-taking session with the Minister for Community Wealth and Public Finance on the draft Land and Buildings Transaction Tax (Miscellaneous Amendments) (Scotland) Order 2024. The minister is joined by Laura Parker, land and buildings transaction tax policy lead, directorate for tax and revenues, Scottish Government.

I welcome our witnesses to the meeting and I invite the minister to make a short opening statement.

Good morning to you, convener, and to the committee.

The Land and Buildings Transaction Tax (Miscellaneous Amendments) (Scotland) Order 2024 provides for amendments to schedule 2A of the Land and Buildings Transaction Tax (Scotland) Act 2013 and introduces a new schedule 6A to the same act.

The amendments to schedule 2A relate to arrangements for the additional dwelling supplement. They address key stakeholder concerns about the existing legislation and ensure that the arrangements for the ADS work as intended.

New schedule 6A to the 2013 act provides extended relief from both residential LBTT and the ADS for local authorities purchasing property to meet local housing needs. It broadly aligns the treatment of local authorities with that of registered social landlords and will help to support our wider housing policies.

The Scottish Fiscal Commission considered the financial implications of the amendments in its December 2023 forecast, and the order was developed following a thorough consultation and review process, which included an initial call for evidence and views, followed by a consultation on draft legislation. The result of that process is a package of amendments that address key stakeholder concerns with the current legislation, ensuring that taxpayers are able to claim the reliefs and exemptions to which they are entitled and extending support where needed.

I welcome the contributions from a wide range of stakeholder groups in developing the content of the draft order, and I hope that the committee will support the motion to approve it this morning.

Thank you very much for that helpful opening statement. I should have said at the start that we have received apologies from Michael Marra, who is having transport difficulties and will not be here until later. I am afraid that we do not know where Ross Greer is, either, but we still have five members of the committee present.

I want to ask a few questions before I open the discussion to colleagues around the table. First of all, this Scottish statutory instrument appears to have been fairly broadly welcomed, but one or two issues have been raised with us. For example, in relation to the Scottish Police Authority, Police Scotland said:

“Despite acting under a statutory duty [Police and Fire Reform (S) Act 2012]; seeking to comply with the housing standards; and house acquisitions being funded by Scottish Government annual grant in aid, due to the lack of direct connection with housing legislation, no exemption from LBTT or ADS is available to the Scottish Police Authority.”

Why has the SSI not been viewed as an opportunity to change that position?

We are grateful to the committee for reaching out to stakeholders to get further evidence ahead of this session—it has been useful. We note the points that have been raised by the SPA, and we are looking into and carefully considering the matter, but it is not something that we were able to address in the set of amendments in this instrument. As the committee will appreciate, the role that local authorities play in relation to housing is quite distinct and different from that of other public bodies and authorities. However, we are looking at the matter carefully, and I am very happy to engage directly with the SPA on the matter and to update the committee in due course.

The SPA has said:

“Whilst not a registered social landlord, the SPA has undertaken to align itself, in principle, with the requirements of housing associations and local authorities and has committed to working towards achieving the Energy Efficiency Standard for Social Housing ... and the Scottish Quality Housing Standard ... for its housing stock.”

It seems unfortunate, therefore, that the police have been omitted from the SSI. If the matter is being considered further, when would we expect an SSI to come forward on that basis?

I am not in a position to give timescales. We will consider any aspects pertaining to housing that are relevant to other public bodies. We will also consider the issue not only from the perspective of the tax—in this case, the LBTT—but more broadly through engagement with housing colleagues. As I said, I am more than happy for Government officials to engage directly with the Scottish Police Authority on the matter.

The Chartered Institute of Taxation has said that the only issue with the SSI is that it is “overly restrictive”, and the Institute of Chartered Accountants of Scotland is concerned that the Scottish Government is bringing in the SSIs piecemeal. That certainly appears to be the case. ICAS has suggested, as have members of the committee such as Liz Smith, that we should have

“a regular fiscal Bill which allows for a point in time at which all amendments to legislation are carried out rather than undertaking piecemeal changes to tax legislation”.

Would that not be a good way forward given the fact that it looks as though you might have to lodge another SSI to include the Police Authority?

I recognise the interest in the matter. Liz Smith and I have had exchanges in the chamber on it, and there is merit in exploring it further.

An annual finance bill would be an undertaking for the Government, but it would also be an undertaking for the Parliament. It would be important for Parliament to be involved in that process and that would mean an important role for the committee. I recognise that the committee has a significant programme of work, but I am happy to engage with it to explore how we can build on the work that was undertaken before the pandemic through the devolved taxes working group. I am keen to look for ways to build on that, but it is important to recognise that, although there is an argument for an annual finance bill, we need to take account of the views of Parliament on how that would be managed.

We are considering this particular SSI as a result of a broad consultation and engagement process. We are also, through the Aggregates Tax and Devolved Taxes Administration (Scotland) Bill, seeking to amend the powers of Revenue Scotland. I appreciate that the committee will consider that legislation later in the spring, and I am sure that we will have the opportunity for further conversations in that space.

We are using legislative opportunities to bring forward reforms, whether that is in primary legislation or, as the case is here, via an SSI. The fundamental point is that there is merit in looking for something that might be more legislatively neat and efficient. However, as I said, it is a matter not just for the Government but also for the Parliament, although I am happy to engage to explore what we can do going forward.

South Lanarkshire submitted a short but interesting contribution. It talks about the flexibility or the lack thereof in the SSI. It says that it is important to

“recognise the need to ensure clarity on what is exempt from the tax”

and suggests that

“it may be beneficial to consider some flexibility in this area, particularly as current grant conditions do not cover all property acquisitions a local authority landlord may require to make”.

It goes on to mention particular groups, such as homeless households and Gypsy Travellers. Where is the flexibility in the SSI for local government to take the necessary decisions on specific groups with regard to LBTT and the additional dwelling supplement?

What is in the SSI reflects the work that was undertaken through the call for evidence and consultation, and the provisions in it relate to housing under the Housing (Scotland) Act 1987 and the Housing (Scotland) Act 1988. It represents progress, and I note that it has been welcomed by local government.

However—and this speaks to the point about the discussion of future reforms—this is a process rather than an event, and tax policy will continue to develop more broadly in the work that the Government is committed to doing on the refreshed tax strategy and the medium-term financial strategy, as well as on operational, administrative and technical matters.

I am happy to consider further the points that have been raised by the local authority as part of the on-going work. We always have to give detailed consideration to specific asks as we keep policy under review.

Laura Parker might have something to add.

That was pretty comprehensive. As the minister said, the Scottish Government engaged in an extensive consultation process with local authorities, and the draft order reflects the key ask from local authority stakeholders in terms of the scope of the relief. However, as the minister said, tax maintenance is important, and the Scottish Government is always happy to keep such things under review.

What would be the financial impact on the Scottish Government of the SSI?

The SFC has given its forecast and, for most of the measures, it is below the immateriality threshold. It estimated a maximum of £7 million over the period with regard to the extensions of the timelines from 18 to 36 months, but we will see that even out.

Over what period? Is that £7 million extra revenue for the Scottish Government or less revenue for the Scottish Government?

Laura, if you have the numbers in front of you, do you want to come in with the details?

It is £7 million of relief given to taxpayers across the forecast. It hits that £7 million figure in 2028-29. Prior to that, it is slightly lower; for example, it is £1 million in 2026-27.

For clarity, are you saying that, by 2028-29, it will be £7 million a year, or are you saying that it will be £7 million up to and including 2028-29?

In 2028-29, it will be £7 million.

Okay, so that is £7 million a year, in effect.

I note that the majority of claims for repayment of ADS tend to happen within 12 months, which is broadly similar to the equivalent taxes in England and Wales. The matter will work its way through over the forecast period. The figure of £7 million is for the end of the forecast period; in that respect, we will continue to monitor both the revenue and the SFC forecasts.

It is important that the Scottish Police Authority is able to provide housing, particularly in rural and island areas. Do you have any idea how much relief would apply if, for example, they were included in a future SSI, or has that not been calculated as yet?

I do not have that number. However, the estate—the number of houses and hostels—that is covered by the Scottish Police Authority is a significantly smaller proportion of the overall property market compared to, say, that of local authorities.

As part of our engagement with the Scottish Police Authority, I am more than happy to explore that further and update the committee in due course.

I will move on to the Scottish Property Federation, which said:

“Tax legislation will rarely cover each and every eventuality and given the potentially high taxation burden of ADS we continue to feel that a power to enable a relief for exceptional circumstances, to be applied on the discretion of Revenue Scotland, could bring additional fairness to the ADS system.”

The Scottish Property Federation went on to say:

“there is something of a missed opportunity to address these wider concerns which we raise.”

What are your comments on that?

I will make two points.

We have sought to address the circumstances that have given rise to the ask for an exceptional circumstances provision through some of the specific amendments that we make in the order. That should reduce the ask for an exceptional circumstances provision and is an important response to some of those specific circumstances.

We gave consideration to an exceptional circumstances discretionary power, but there is concern around administrative complexity and uncertainty, particularly for Revenue Scotland and taxpayers.

Through the order, we have sought to address some of the specific concerns that have been raised about the way in which ADS has operated previously. That is why we have not pursued an exceptional circumstances provision, but rather have sought a targeted approach to addressing some of the particular issues that have arisen previously.

You talked about complexity, which was one of the issues raised by the Law Society of Scotland. It said:

“The law relating to the ADS is complex and nuanced. We do not consider that the amendments in and of themselves will simplify the law in this area – and in some cases may complicate the position for certain taxpayers depending on their circumstances.”

I am sure that colleagues may wish to give examples of those complications, which are in their papers.

What is your view on that? One would have thought that the whole purpose of this was clarity and simplification, yet the Law Society of Scotland appears to be of the view that the opposite is the case.

09:15  

I recognise the complexity involved, and the issues that ultimately led to the call for evidence and the consultation on the draft order speak to that complexity. I received much correspondence from colleagues outlining their concerns about how ADS was operating. That is why we took forward this work, which seeks to address those concerns.

On the draft order specifically, Revenue Scotland will produce clear and comprehensive guidance ahead of 1 April, should Parliament agree to the order before us, which will be shared in advance. My understanding is that Revenue Scotland has already shared its work with relevant stakeholders in tax, accountancy and law, and that it intends to host a series of webinars in advance of 1 April to ensure that sufficient information, guidance and awareness are provided on how the system will operate, should the order be approved by Parliament.

I will now open up to questions from colleagues.

Good morning, minister. I wish to raise a couple of wee points. In general, the changes to ADS in particular are welcome, because there were quite a few anomalies, as we know.

I just wanted to check something relating to a comment by the Chartered Institute of Taxation on situations in which somebody finds themselves in the position of taking inheritance of a property and then seeks to buy their own home. A provision of relief has been made for the period between the property being inherited and the conclusion of missives for the new property—or the purchase of the new property, I should say. The point is that missives are now invariably concluded on the day of purchase. That has been the case since about 2008. The days when people concluded missives and purchase would take place later have gone, because of the lack of availability of finance.

Could you explain your thinking in that regard? It seems like a relief that will get very little take-up altogether. Therefore, people will still continue to be impacted, through no fault of their own and with no choice, in situations in which they inherit a property but still need to buy their own family home. Could you provide a bit more context around that?

As much as I made reference to having received correspondence from colleagues on the operation of ADS, the system overwhelmingly works as intended. It works effectively, and the whole system is proving to be an important source of revenue for the Scottish Government. The measures that we are considering today are quite narrow, and they will perhaps not affect a significant number of people, but they respond to concerns that have been raised. The point about responding to a unique set of circumstances is one that I accept.

As for what is covered by the particular provision before us, I take the point about the situation in which the conclusion of missives and the closing of the transaction happen almost simultaneously, in which case there is not a window. However, when there is a window between the conclusion of missives and the effective transaction date, if someone were to inherit a property—we should remember that LBTT does not bite on the inherited property—come into possession of that property and purchase another property afterwards, that situation would be almost outwith their control, to some extent, so the proposed measure seeks to provide a relief that is fair and reasonable.

I recognise that the situations in which what is proposed might be of benefit might not be frequent, but for those who find themselves in such situations, it will help to provide greater certainty and fairness in the system.

You make a fair point about the probability of occurrence in both scenarios. There will not be huge volumes of cases, but when the situation occurs, it could potentially have quite a big impact on one person. Therefore, I want to follow up on the convener’s comment about the possibility of Revenue Scotland having some kind of discretionary power.

I think that you already concede that there continue to be some scenarios that, because of their nature, will require the introduction of further SSIs in order to be ironed out. I am still a bit unclear as to why you would not grant a discretionary power to Revenue Scotland. I know that you look for certainty in the law, which is eminently sensible, but you concede that there continue to be some anomalies as we get into the detail. Giving a discretionary power to Revenue Scotland would surely allow for the ironing out of such anomalies. If HM Revenue and Customs—which obviously has more resource; I understand that—can do that without there being continuing legal cases, why would Revenue Scotland not be able to do that?

My understanding is that HMRC’s discretion is really just to extend the timeline. I appreciate that it is 36 months in England, but one of the things that we are doing through the order is extending the period to 36 months.

The issue of whether Revenue Scotland should have such a discretionary power is one that we can explore, but it would represent a significant change from the way in which we operate at the moment, whereby Parliament legislates and Revenue Scotland provides the guidance. It would be a significant change for Revenue Scotland, recognising that HMRC operates under a different set-up. However, the broader point is one that we can consider. A lot more detailed consideration and exploration would be required.

I come back to the point about how we have sought to address the issues that have been raised, which have led to the order coming before the committee. Having identified, through consultation and engagement, a number of specific anomalies, we are seeking to address those directly by taking a targeted approach through the amendments for which the order provides.

You make a fair point about that being a change, but it might be worth considering at some point, along with the idea of a finance bill, which we are having similar discussions about, because there are always unintended consequences with our tax. There is also the complexity of shunting Scottish taxes into a wider UK framework. Such an approach may lend itself to that, but that is probably a separate discussion.

Thank you. John Mason has opted out, so the next member to ask questions will be Liz Smith.

I was grateful to hear your comment that you are open to having further discussions about a finance bill. Have such discussions taken place within your portfolio, or have they gone further up the scale to Cabinet?

That is a discussion that we have had previously, in the context of looking to recommence the work of the devolved taxes group, which had to go into abeyance during the pandemic. It is something that the Government is open to discussing further.

I appreciate that I am repeating myself, but it is important that there is engagement with Parliament, if we are to move to that particular system and approach. I imagine that this committee would have to lead on that piece of work. I am conscious of that, and I am more than happy to have further discussions on the matter. I know that officials are happy to engage directly with the committee, as well, but there is a broader set of considerations to take into account in terms of feasibility.

Thank you for that. In its submission, the Institute of Chartered Accountants of Scotland says:

“Historically we have found that generally speaking, awareness of Scottish taxes is not high in Scotland”—

I think that we know that—

“and there is a need for improvement of communications by the Scottish Government to ensure this improves, in line with the Scottish Government’s own Framework for Tax principles.”

We have heard quite a lot from Audit Scotland about the need for greater clarity and transparency on tax in general—what decisions have underpinned certain tax decisions, where the money is coming from and so on—so I think that the point that the convener and Michelle Thomson raised is a valid one. The idea of having a finance bill to improve that and to provide some extra clarity and transparency is quite appealing to this committee. I completely take your point that scrutiny of that would have to be done by Parliament, not just by specific committees, but we would be grateful if that discussion could go a wee bit further.

I am more than happy to ask officials to engage directly with the committee following this meeting, and we can discuss how we can take forward that work.

In answer to the convener, you said that you are not able to provide timescales, should further amendments be needed. Might a number of adjustments need to be made or are you reasonably content that, should the order be agreed to, it will be effective in addressing most of the concerns that we have heard about?

The previous conversation around the merits of a finance bill speaks to the fact that there will always be a need for care and maintenance. We have to take decisions based on the information that we have at the present time. Therefore, from that perspective, the answer is yes, but we recognise that, inevitably, other issues and concerns can emerge in the future and that we would respond to those, just as we have responded previously.

This particular tax has been the subject of quite a significant volume of legislation, both primary and secondary, and amendments since it was introduced. We will respond and will seek to do so in a way that is as open and transparent as possible through engagement. With regard to specific timelines around the issues that have been raised by the SPA, we will engage with the authority on that. As I said, I am more than happy to update the committee in due course on where those conversations lead.

In relation to some of the concerns that have been put before the committee, will the Scottish Government have on-going discussions with the relevant groups individually about their concerns or is today the end of the matter for that discussion process, should we agree to the motion on the order?

I would not want to describe today’s consideration as the end of the matter. As with all aspects of tax legislation, it is a process rather than an event. A number of issues have been raised. It was always a case of finding a balance. I appreciate that there are competing demands and that not everyone can be satisfied without that impacting on others.

The broader points around transparency and how user friendly the presentation of legislation is—again, that touches on the point about an annual finance bill—are very important. We want to have a tax system that is as straightforward to use as possible. We understand the importance of that in relation to economic growth and providing certainty. In that spirit, we are very keen to continue those conversations, whether with public bodies and other authorities or, indeed, with organisations such as ICAS, CIOT and the Law Society.

I have a quick point of clarification along the same lines as the convener’s point about Police Scotland, which has talked about the lack of exemption. As you will be aware, access to housing, particularly in parts of my region of the Highlands and Islands, is very difficult, as there is a shortage of housing. There have been a lot of suggestions that public bodies should or could provide houses to ensure that they can get the staff that they need, particularly with regard to jobs around the national health service. Would NHS boards be entitled to the exemptions that Police Scotland is not entitled to or would NHS housing also not be exempt?

The exemptions as set out in the amended schedule, should the order be agreed to, would be specific to local authorities under the 1987 and 1988 housing acts. Laura Parker might want to comment on the situation for other public bodies.

As part of the review and the work around Police Scotland’s submission, the Scottish Government wants, and is seeking, to understand the impact on similar organisations, such as the NHS and the Scottish Fire and Rescue Service, for example, so it will be an all-encompassing review.

The fire service is a national body but NHS boards are local. Are you aware of whether NHS boards would be exempt at the moment?

My understanding is that they would not be exempt, but I am happy to clarify that and write back to the committee. Our conversation has explored a wider range of issues around exemptions for public bodies. The question is whether, if local authorities are exempt, other public bodies should also be exempt.

We could start to go through every public body one by one, but I suggest that it would be helpful to the committee for us to take that away, to have further discussions, to engage with housing colleagues and the Minister for Housing, and to write back to the committee in order to provide a broader overview of the current landscape, provide clarity on the point that you raise and set out the work that we will be doing to develop policy in that area.

That would be very helpful. The NHS boards that I speak to in my region have staff shortages, and access to housing is a big part of that. My question is about how the issue of an exemption would fit in with encouraging or supporting them.

09:30  

That appears to have exhausted questions from the committee.

Ross, you are here just in time to vote.

Apologies, convener. My bus valiantly attempted to ford some flooded roads this morning, but it took longer than the driver expected it to take.

Agenda item 2 is formal consideration of the motion on the instrument. I invite the minister to move motion S6M-11928.

Motion moved,

That the Finance and Public Administration Committee recommends that the Land and Buildings Transaction Tax (Miscellaneous Amendments) (Scotland) Order 2024 [draft] be approved.—[Tom Arthur]

Motion agreed to.

I thank the minister and Laura Parker for their evidence today. We will publish a short report to the Parliament setting out our decision on the draft order in due course.

09:31 Meeting suspended.  

09:50 On resuming—