Yes. Our main concern is that the tax will be seen as an added cost of investment in Scotland. It creates a differential between the cost of investing in development and developing existing stock in Scotland, setting it apart from the rest of the UK. Many of the decisions about property investment are made at the margins. Although it might not seem that 0.5 per cent would make a great deal of difference, it could do so at the margins.
In general, for multimillion-pound investment projects such as the Haymarket development in Edinburgh, even 0.5 per cent of the cost of the transaction would be seen as having a net detriment with regard to investing in Scotland versus investing in England or Wales.
Indeed I am open to that argument. To reiterate, we broadly welcome the proposal that has been made. We are seeking to suggest refinements, so we are not suggesting an overall reduction in the tax take; we are just suggesting that the distribution of the tax could be more even. From our paper, you will note that we support a reduction in the tax for the lower end of the market. We think that it could be more evenly spread towards the middle of the market so that the distribution is smoother.
I want to put the picture into context. We are still in the midst of a housing crisis, with only 15,000 new private and social homes having been built in the past year. We collect data from the majority of our members, who deliver about 95 per cent of all the new homes that are built in Scotland, so we have a reasonable finger on the pulse of what is happening.
In the early part of this year, we saw significant signs of growth. However, as the year has moved on, our forecasts are that housing output this year will be broadly the same, so we will see no increase in total housing output. Whichever way we look at it, we are not eating into the challenge that the Scottish Government recognises of needing to increase housing output.
We want to see how the new LBTT system can support that growth in housing output, so our paper is purely about recommending ways in which we think that we could engineer the system. We welcome the removal of the slab system, but we need ways of further engineering the system and we need to remove some of the tax on bulk purchases, which will have a significant impact on large-scale and large-volume investment.
I may be switching around a little bit, but I think that this is relevant. The Scottish Government has recently supported our organisation with the appointment of a private rented sector champion. His role is to attract institutional investment for the large-scale construction of privately rented properties that are professionally managed and of the highest quality. The Scottish Government is supporting us through that project. We need a professionally run large-scale private rented sector, like we have in many parts of Europe. However, the proposed tax system will undermine that, because the proposed tax on large-scale multiple purchases will be significantly higher than it is now.
We recognise that tax must be gathered, for all the reasons that John Mason points out, but we are looking to tweak the process to make it more effective, in line with other policy requirements.
Yes. The example that I just gave was the case of a large-scale housing development that might take some years to be developed and might involve a number of completion certificates.
The other area that we have a concern about is commercial developments in which forward-sale arrangements are made around a transaction. Again, that involves a piece of land that is bought by a developer and is then improved and developed before being sold on a number of years later. It is not easy to assess when completion would occur in that circumstance, or when a certificate would be available.
We see the definition of the certificate as quite problematic. We think that it is potentially too confusing or, perhaps, that it is an application of a fraught process to what we see as a problem that does not really need to be solved. The industry is not evading tax. Currently, it is paying the correct amount of tax on the transaction. If it is paid twice, and the rules are applied, it is repaid. We think that that situation should continue.
11:00
Okay, let us call it the middle price band in the range that has been put forward in the submission. I am not trying to attach a label with any socio-demographic meaning to the band. I was saying that notionally that is the middle range of numbers in the range of bands from zero up to 1 million. I was not talking about middle incomes or middle house prices.
I reiterate that we need the market to move at all levels. If the market stagnates at the £325,000 to £500,000 point, it will not release properties at the lower levels, which will stop first-time buyers moving upwards. I am sure that many of us who have moved house have been stuck in the notorious housing chain, waiting for the purchaser of our property to sell before we can move on. We are all familiar with the chain concept. Some of us might have had unfortunate experiences whereby the chain has broken down at various points. We are saying that we need that section of the market—let us not call it the middle of the market, if that causes a problem—to be able to move.
I mentioned diminishing equity. In previous years, many people who were moving on to their second or third property had enough equity in their home to be able to afford the stamp duty. I am looking at some figures that show that Scottish house prices are still below—about 4 per cent below—their pre-crisis peak. There are many people who do not have the equity that they would traditionally have had, and we think that that could create a problem.
In addition, a number of our members have reported back that some customers who had reserved homes that they were due to move into from April 2015 onwards have come back to them because they have suddenly realised that they face a bigger tax bill and have asked what they intend to do about it. They have told our members that, if they cannot cover that additional tax, they might have to cancel the purchase. An element of trading and negotiation will go on in such situations—that is part of commercial life—but if we are talking about a private seller of second-hand property, that could jeopardise the chain. The seller could say, “I’m sorry, but I can’t afford to lower my price any further.” There is already evidence of some movement around the bands.
10:15
Our members tell us that it is important. The £250,000 figure has historically been a significant price point in the market. As John Hamilton has mentioned, in the current tax system, there is an enormous tax increase when the cost of a property goes from £249,999 to £250,000. The tax increases from £2,500 to £7,500, so for an extra £1 on their property someone pays £5,000 in tax. As a result, home builders cannot design, construct and market a property anywhere near £250,000 or £275,000, so there is a gap in the market, and we would welcome easing out that situation. However, the £250,000 to £500,000 band relates to an important section of the market: family homes for aspiring growing families in some—but I accept not all—geographies. It is important to keep that part of the market moving.
We can draw our own conclusions about affordability beyond £500,000 but, under the proposed system, that part of the market is, as we have said, getting about a 42 per cent tax increase. That increase could be spread a little further among the lower bands.
The residential market must also be considered here, because the land aspect of any house building involves a commercial transaction. House building is not set apart from the argument. Broadly, the housing market is being carried by the larger UK house builders because a lot of the market’s smaller house builders have, unfortunately, gone out of business over the past five or six years.
I have direct experience of a UK national house builder making a decision about whether to invest in and buy land in West Lothian or Yorkshire. This goes back to the point that Philip Hogg made. The proposals had yet to come through when the decision was being made, and I know that the proposals would potentially impact quite negatively on the chief executive’s decision to buy in West Lothian as opposed to Yorkshire. In the commercial area, the tax is a cost, as I said before. A number of large commercial developers operate only in the UK, and they will see a change in the regime in Scotland compared to the regime in the rest of the UK.
More widely, we are encouraging major investment projects including investment in the Edinburgh financial sector. I mentioned the Haymarket project, and projects of that scale run to a cost of tens of millions of pounds. There are other examples of such projects in Glasgow, which has an emerging financial sector. Investment, whether in London, Edinburgh or Glasgow, will be made on the basis of the cost of the transaction. It may be seen as marginal, but it is still a difference in the cost of going through with an investment, and we think that it is more appropriate to consider the issue in terms of the potential loss if some transactions do not proceed. The projects that we are considering, which are valued in tens of millions of pounds, could have thousands of jobs connected to them whether they go ahead in Edinburgh, Glasgow, Aberdeen or Leeds. We think that the stimulation that such projects give to the economy and the number of jobs that they create should be considered directly against the benefit of setting the rate in Scotland at 0.5 per cent above the rate of tax in the rest of the UK.
I do not agree with that particularly. I would also say—this applies not just to social housing but to all housing—that the great challenge is not so much for new-build housing, for which there are energy efficiency standards to be met, which result broadly in fuel bills being relatively affordable. The great challenge is in existing housing. Our members have the most energy efficient housing by tenure in Scotland. With fuel bills rising, there is always the opportunity to do more.
Often, it is a challenge for our members when they own properties in mixed-tenure stairs, such as traditional tenements in Edinburgh or Glasgow, where they might be the minority owner. They would like to invest in and improve the energy efficiency of the property but they might not be able to persuade either the private owners or a letting agent to participate in increasing energy efficiency. Again, the mechanism that we suggest would help to provide an incentive, along with Scottish Government grants for the private sector; it would push people towards thinking about investing in energy efficiency.
Land prices must come in here. A number of respondents have made the point about competition, but I would have thought that the land price would be a much bigger factor in the cost of the overall project than whether the tax rate was 4 per cent or 4.5 per cent or that kind of thing. Is that not the case?
Does the Scottish Property Federation hold a similar view?
In effect, you have suggested that a new banding be created.
Obviously, the existing system has issues. We believe that the transition to LBTT will probably benefit more people than it disadvantages. As you pointed out, there are geographical issues, in that the perception of the tax will be different in different areas. That cannot be changed, because we are where we are geographically. One issue that the tax will address will be that of promoting growth at the bottom end of the market in more affordable housing. We are all crying out for that to get the housing market moving again.
There are issues with regard to the step up from 2 to 10 per cent. In essence, our concern is that, if the tax is to be neutral overall, we need to make it relatively fair across the board, and it must be seen to be fair. If it disadvantages people—as I said, the mark around £325,000 has been flagged up as a line in the sand—there is an issue. People may decide at the £325,000 mark that they will not move because they would rather stay where they are and invest. That could be quite good for the construction industry in general, but it will not help the housing market. People still aspire to move up the ladder, and it is possible that such a change would create a problem in the market, although not everywhere.
09:45As the convener pointed out, those in the majority of houses in the lower bands will probably be better off as a result, which will stimulate the market. I think that those in more affluent areas of Scotland would be prepared to pay extra money as long as the tax was not viewed as punitive in relation to their particular circumstances.
Mr Honeyman, your submission contains some interesting comments on the topic. Can you talk us through your views?
You raised the valid point that we need more homes and houses. From society’s point of view, if we have £1 million, do we want one house for £1 million or 10 for £100,000 each? Based on your argument, it seems clear that as we need more houses, we should have more smaller or cheaper houses at the bottom end. That is what will benefit society; a few £1 million houses will not benefit us. Should we do all that we can to push the investment down to the bottom end, and let the top end take care of itself?
That would be helpful. If you could go a bit wider than that and give other examples, that would be better still.
Thanks.
10:45
We are talking about around 5 per cent of the overall housing market being disadvantaged, given that anyone who buys a house that costs less than £324,300 will actually be better off in terms of tax. Is one of the issues that you have to do with geography? Obviously, some areas of Scotland are poorer than others, so there will be a differential in the number of affected properties in specific areas. Is that a concern? The measure might be more impactful in areas that are more prosperous than in other areas.
Not as such. The issue was flagged up by a member association that operates mainly in Edinburgh and the Lothians and has over 400 properties for mid-market rent. It was raised as an area of concern, but the cost might not be so much that rents would be affected. The rents tend to be set so that they sit somewhere between affordable or social housing rents for people who would not otherwise be able to afford a house, and what the market charges.
The concern is more about LBTT limiting the number of units that an association might buy or about the cost to the public purse. To develop a mid-market rent, you need land to be transferred at nil value or below market value, or you need some form of grant or mechanism such as the national housing trust, which the Scottish Government promoted. The tax would not affect all mid-market-rent properties. As I said, mid-market rent is not the main part of housing associations’ business, but in a period when a lot of people cannot afford to buy until they are older, it meets an important need. We wanted to flag up that the tax might be a cost that could affect the ability to deliver.
In a survey of the members of Mr Honeyman’s organisation,
“63% of respondents indicated that higher value property transactions should bear a larger share of the overall tax burden under LBTT compared to SDLT.”
That is what the proposals are delivering.
If I understand you aright, the crossover point for commercial property is around £2 million—is that correct?
Mr Stewart, in your submission you raise the issue of energy efficiency and allowances. What would that look like if it was addressed?
I have one or two questions to finish off with. First, I will follow on from Jean Urquhart’s questions to Mr Stewart. We took extensive evidence on the matter in considering the Land and Buildings Transaction Tax (Scotland) Bill, but the issue was that no one could come up with a workable scheme. Mr Stewart said that the Scottish Government should come up with a scheme and that his organisation would contribute to it. The issue is that no one has come forward with such a scheme. The Scottish Government and the committee took the view that the bill was not the place to do that, because it would overtly complicate the issue and there would be other ways of dealing with it.
The question that I want to finish on to round up our discussion has not been touched on, although the matter was discussed extensively during the passage of the bill. I refer to sub-sale relief, on which sections 8.6 and 8.7 of Mr Hamilton’s submission are focused. You are quite critical of what the Scottish Government has come up with. Can you talk us through your views on sub-sale relief?
Yes.
There is an element of that, but it is not necessarily to do with areas being more prosperous—it is the sheer cost of housing in some localities. It is just more expensive in some areas. It is just one of those facts that certain geographical areas have more expensive properties. We—
The committee’s adviser, Professor McEwen, has said that taxation at the higher end is not as much of a consideration for people who are trying to move house as one might think. How much of a consideration do you believe it is?
We need a mix of housing. As I said, as people’s lives change—as they have families and as their jobs require them to move around—they need homes of a suitable quality for their purposes. With the booming oil economy in Aberdeen, arguably there is a need for higher-value properties there. If we do not cater for higher-net-worth individuals, we will have a commuter society, in which people fly in, live in rented accommodation during the working week, then move out again. For the long-term sustainability of each economy we need the appropriate mix of housing.
We need housing at all levels, across all tenures. We are fully supportive of that argument. That is supported by each local authority developing its housing needs and demand assessments, which feed into local plans.
Absolutely.
Without presuming to develop a detailed proposal, that would best be done by the Scottish Government in consultation with stakeholders. What we are suggesting is a variation on the tax, whereby people would pay slightly more for properties that are less energy efficient than the average and slightly less for properties that are more energy efficient than the average. We do not propose that that would have a huge impact on the level of the tax; rather, it would send a signal that energy efficiency should be valued, as the Scottish Government has set out in the sustainable housing strategy.
We would be glad to contribute to the development of proposals. We thought that it would make sense, when a buyer was looking at a couple of flats in the same area that were roughly the same value and size, for the taxation system to favour the property that was most energy efficient. Alternatively, if someone was selling a property, there might be a taxation benefit in investing in low-cost energy efficiency measures such as cavity wall insulation or loft insulation, which would make the property more attractive to buyers.
We do not see that as the solution that will hugely increase the energy efficiency of Scotland’s properties; we see it as part of a suite of measures—such as the availability of grant, and the setting and gradual raising of minimum standards—that could help Scotland to work towards meeting its climate change targets.
I concur with that point. Our members will recognise the example that John Hamilton has mentioned.
Quite often, there will be a situation in which a lead developer will want to buy a large piece of land from a landowner with the intention not of building on all of the land himself, as it is too large, but of selling parcels of it to smaller developers, and the landowner wants to deal on a one-to-one basis with a lead developer. The system that we understand is being proposed is that the tax would have to be paid up front, but that it could be reclaimed only once the secondary developers had produced completion certificates. That would mean that the lead developer would be taking all the risks and providing all the forward funding of the cash flow and placing all his trust in the sub-developers to keep their part of the arrangement.
Few people predicted the financial crash that we have been through. If, for whatever reason, we were to have another situation in which the sub-developers did not complete their parcels of work and did not build their homes, the lead developer would be out of pocket, through no fault of his own. That risk is clear to our members. It will manifest itself in a wariness on the part of lead developers to take that risk on behalf of someone over whom they have no control. We would seriously ask that consideration be given to the issue.
As John Hamilton said, there is no issue around tax avoidance; it is all about risk and cash flow. We think that the system that is proposed needs to be considered further.
The mid-market rent is about 80 per cent of the private market rent, is it not?
It probably reflects the fact that our membership covers a wide range of operators in housing and commercial property. Some of them operate one-off houses. Everybody would like the tax to be nil but, generally, they are in favour of it staying as it was or being less. Nobody wants to pay more tax if they can avoid it.
Land prices are not constant and it depends on whether you are talking about commercial or residential land. It might be that 20 per cent of the cost of a typical development will be the land. That is a sizeable proportion of the amount of investment in a project. On the bigger projects, whether the tax is applied to the land element or on a forward sale to the full development value, it is a significant cost.
Yes. We have also suggested a mid rate of about 5 to 6 per cent in the same band that Homes For Scotland has highlighted.
As far as houses up to £250,000 are concerned, I note that Homes for Scotland generally looks at new-build property in its own business sector, and a key aspect of such properties is that they must be constructed. However, with the houses that we have been talking about, there is only a certain amount of flexibility in construction costs. As you move up the chain, there is potential for builders to provide a wider range of high-quality housing. People generally aspire to move to better properties; indeed, people should be encouraged to make that move, because the more they do so, the better. Although we welcome the stimulus to the low sector of the market, we also appreciate that people will look to move up the housing ladder, and the tax regime has to be set to allow that to happen.
Yes.
With regard to the commercial aspect, the transition happens at around the £2 million mark. When one looks at the overall figures, once one gets over that mark, the 0.5 per cent element climbs. I do not believe that it is so significant as to put people off undertaking a project; if they are making the decision on the project at that level, I would find strange the idea that the tax would make the difference between the development being profitable or unprofitable.
However, there are issues with regard to the actual spend on the project. I am sorry—I have lost my train of thought.
On the tax side of things, there is a significant amount of volume and suchlike around the £2 million mark. That is probably where the majority of the issues lie.
I am sorry—I have lost my train of thought totally. Please bear with me.
Those transactions already bear a higher tax burden.
You have suggested that some transactions might not go ahead, and that people might just stay put. I realise that it will be difficult to know this, but how likely will that behaviour be if people feel that they will pay too much tax?
As we understand it, the principle of sub-sale relief is still being maintained in the proposals. There are two instances in which it is quite commonplace for sub-sale relief to take place. One of those would be in the example that I gave earlier of a landowner selling a piece of land to a masterplan developer and that masterplan developer then selling the land forward, normally on the same day. The transaction takes places with the original landowner and the land goes through a developer to a house builder
The principle of taxation on the transaction of one parcel of land—it is one item that is being taxed—means that it would be taxed twice in the transactions between the landowner and the masterplan developer, and then between the developer and the house builder. The principle of relaxation from sub-sale relief exists already. We are concerned about getting into a protracted process in which relief on the double stamp, as it used to be called, is obtained. In that situation, the original landowner could be trapped in a process that could take many years before the tax is reclaimed. He is selling his land and the matter of who pays the stamp duty, as it was, or LBTT on that land is not necessarily automatic.
As I said, some of the plots of land can be quite considerable in size and it could take many years to develop them. It would therefore not be easy for a completion certificate to be generated that would allow the tax to be reclaimed.
In a way, we think that it is a problem that does not need solving because it is accepted that the tax has been applied twice and, if both transactions occur on the same day, relief should be granted. In our view, it should be granted promptly and it should be commensurate with the original land transaction.
Good morning and welcome to the 28th meeting in 2014 of the Finance Committee of the Scottish Parliament. I remind everyone present to turn off any mobile phones or other electronic devices.
Our first item of business today is to take evidence on the Scottish Government’s draft budget 2015-16 from Philip Hogg, the chief executive of Homes for Scotland; John Hamilton, the chairman of the Scottish Property Federation; Ian Honeyman, the commercial director of the Scottish Property Federation; and David Stewart, the policy manager of the Scottish Federation of Housing Associations.
Members have received submissions from each of our witnesses, so we will go straight to questions. I will start with a few opening questions before opening out the session to colleagues. I was impressed by the quality of the submissions that we received. They were excellent. Some of the questions that we will ask this morning are answered in the submissions, but it is important for the Official Report that we address some of the issues in greater detail.
There are many areas to ask about, but I will start with the submission from the Scottish Property Federation. I invite anyone to comment in response to any question, no matter who it was directed to. We want to get as wide a range of responses as possible.
The Scottish Property Federation talks about the approach to the land and buildings transaction tax and suggests that it would have been prudent to have allowed Scottish ministers greater freedom to set competitive tax rates and thresholds. Could you briefly go through your thinking on that? I do not know whether Mr Hamilton or Mr Honeyman would wish to answer that question.
That would mean a softer move from 2 to 10 per cent.
Sorry, but the most prosperous parts of Scotland clearly have the most expensive houses, such as East Renfrewshire, Aberdeenshire, East Lothian and Edinburgh. Where I am in Ayrshire, not many houses sell for more than £324,000.
We should remember that people who want to move up the way must be able to afford to move—we are not talking about the point when they are already there and have the equity in the property. It is the transition that is a big step. If somebody is making the decision to move from a £180,000 house to a £300,000 house, that move will, if they can afford it, suddenly appear to be a bigger step than it would otherwise have been. That is the issue that needs to be looked at.
Do not worry—we can always come back to that bit. I am sure that colleagues will want to ask about it.
Mr Hogg, you say in your submission that:
“It is crucial that Scotland remains a competitive place to invest and bring forward housing development”,
and you express concerns that the proposed 0.5 per cent increase
“is not helpful.”
Surely there are many factors at play in property development. For example, the cost of one hectare of land in London must be massively different from the cost in Glasgow. Surely the tax is only one relatively small factor in terms of such investment decisions, as Mr Honeyman pointed out. How important is it in the decision-making process? That is the question that I am trying to grapple with.
I have an example that might illustrate David Stewart’s point. We have worked through an example of 50 flats at an average price of £150,000—to select a random number—which would make a total purchase of £7.5 million. That is the sort of unit size that housing associations or investors might look for. Under stamp duty land tax—the tax that is in place at the moment—the stamp duty payable would be £75,000. Under the proposed new LBTT system, the tax would be £131,100, which is £56,000 more, or a 75 per cent increase. The magnitude is significant—it is a major increase. For housing associations and large-scale investors, that increase of £56,000 could well be a dealbreaker.
As the deputy convener said, when we took evidence on the matter, it was felt that it had stopped being an issue; this was not seen as the place to address it. It occurs to me that you are saying that somebody with a less efficient house would pay higher tax and higher fuel bills.
Are they taking into account the fact that we need to pay teachers and nurses or is that not really a factor for them?
But if we look at a city like Glasgow, the land costs are higher in the west end than they are in the east end, but people want to build in the west end and not in the east end. It is not just a question of finding the cheapest place to go, is it? In that equation, even if the tax was 4 per cent in the east end and 4.5 per cent in the west end, people would still want to be in the west end, would they not?
So, if a project is under £2 million, it will pay slightly less tax going forward, but if it is over £2 million it will pay more tax. Is that broadly correct?
Your submission states:
“The notion of a relief where tax is paid and might only be refunded at a later date subject to many risks and potential delays is not viable.”
Yes.
The measures are correct in having a zero tax rate at the lower end of the market, which will encourage properties there to be built and sold. That is good and fine, but in the overall tax take there will have to be enough of the bigger properties. Tax must be collected on those properties to fund the tax that is not being collected in the lower end of the market. That must be balanced.
But this is in comparison with stamp duty.
On the basis of previous experience, even removing the issue of tax, we know that price deflation in the housing market is a real catalyst for stagnation. People assume that their property is worth a certain amount, and if they are considering moving, they will have in their mind what they think the property is worth. They might have as a reference point a neighbouring house or a house adjacent to theirs that sold a year or two back, and I would suggest that, human nature being what it is, people will think that if that property achieved that price, their property must be worth at least X.
However, when price deflation happens—in other words, when an agent, property expert or valuer comes to assess a property and tells the customer that their property is worth less than they thought—many people are deterred from moving. They either think that they will sit tight and wait for property prices to improve or simply say that they cannot afford to move. That is the effect of that situation, and there is the potential—I do not want to overstress it—for that to happen in that price band.
I have a couple of questions. Mr Hogg, you recommended that there should be a different tax band in what we will call, for the moment, the middle. If we made such a reduction, that would mean a reduction in budgetary terms for the Government. Where would you increase tax to offset that? Would you increase the higher rate or would you change the tax bands for the lower-value properties?
Okay, that concludes our questions. Does anyone have a final point to make on any aspect of what we have discussed today?
As I said, we propose a more even spread of the tax take through the bands, rather than a very steep increase when it goes across that neutral point. We are just asking for the spread to be evened out. We support the idea that people at the lower end should be given a tax advantage—in other words, they pay less—but we think that the increase could be evened out, rather than being as steep as it is at present.
Well, they would, but we do not see it as helpful—in fact it is rather negative—to approach the issue from the point of view of dampening interest in investing in one area rather than another. We would rather see a stimulus being provided in the areas where we want to see improving values, whether they be land values or overall property or commercial values, and there are better ways of doing that.
Mr Hogg, in your exchange with the deputy convener you suggested that the rates should be altered to even out the rates to the middle of the market. You have suggested a new band: 7 per cent from £250,000 to £500,000—I presume that that is what you are talking about. However, it is not right to call that the middle of the market, is it? Maybe it is the middle range in terms of rates, but we know that the Scottish average house price is £170,000 and even in Edinburgh, where house prices are higher, it is £235,000. To call that range the middle of the market is not quite telling the full story, is it?
As I pointed out a moment ago, without having access to the modelling it is difficult to know what amount would need to be made up if we made that change. We suggest moving the bottom level up from £125,000 to £135,000; however, not knowing what gap we would need to plug, it is difficult for us to know where that might come in.
The other factor to take into consideration is that although, as we have said, taxes can have the effect of stifling activity or transactions, the opposite can be true: taxes can stimulate activity and there can be net contributory effects. I am not an economist, so I am not going to suggest that the number of transactions would increase if we tweaked this or did that. However, that is the sort of thinking that we are talking about.
We genuinely believe that the model is a good move in the right direction. We think that there is a great opportunity for the Scottish Government to see how it could use tax powers to stimulate the economy, and the model is a good first step. We are suggesting refinements to take the model even further, but I cannot suggest what would need to be tweaked by what amount. Our proposal would mean that purchasers of properties valued at above about £400,000 would still pay more than they would under the current system, so we are not suggesting giving them a free ride; we are just asking for the burden to be reduced from what is proposed at the moment.
Someone moving from a £180,000 house to a £300,000 house would still be better off.
Building on the comments that John Hamilton made a moment ago, many of the major UK-wide home builders operate an internal market of competition when they are looking at a range of potential development sites. Each of the regional companies that build the homes must compete internally against their peer group for the group assets and the group finance. Anything that makes a development site in Scotland more expensive than a site down south will be looked at dispassionately by the group finance director, or whoever is the decision maker. They may say, “Well, we can achieve a better return on our investment from the site in Durham than we can from the site in Dundee.”
That is where the economics make a difference. It is also a fact that home building is more expensive in Scotland anyway, as a starting point, because of the higher thermal energy standards that we have here. Construction costs are already more expensive, and through the tax we would be adding an extra cost. That may be viewed as a marginal cost, but it is that little bit extra that will make it a bit more difficult, and a little bit less attractive, to compete for funds in an internal market. We thought that it was appropriate to flag that up.
Your written submission says:
“associations providing mid-market rent are meeting a housing need that would not be met by the market”.
Presumably, it is making it a bit more affordable for some people who would struggle, but the reality is that they would have to pay the market rate otherwise, so they already have a 20 per cent advantage.
I just want to clarify that housing associations’ main business is, as the SFHA submission states, exempt. The point that we are discussing relates to a specific subset of housing association business.
You have said that there is the potential for it to happen, but if it did and there were fewer transactions than were predicted, the tax take at various levels would be affected.
I appreciate that point, and we would have to be careful of that in the design of an incentive. However, the longer-term aim would be that if investment in energy efficiency was incentivised, home owners would pay lower fuel bills. The UK Office for Budget Responsibility predicts that, broadly speaking, fuel bills will rise above inflation for the next 17 years. Even relatively minor investments or incentives to improve the energy efficiency of housing could help to address that issue and, at the same time, reduce carbon emissions.
I am happy to answer on behalf of the SPF. We welcome the change to a progressive system. We think that it is an excellent introduction, which is of benefit to the residential and commercial markets.
We also believe that the Scottish Government could think about the position with regard to the ability of developers to trade within the United Kingdom. The bands and rates that have been introduced would merit some adjustment in order to give Scotland the sort of advantageous trading position that the new system could introduce.
Yes.
It is difficult to say. They probably look at the questions that they are answering from the point of view of how the tax affects their business rather than thinking about where it goes. All the tax goes into the pot and nobody knows where it is spent.
We are not disputing the principle; we are disputing the amounts and the changes in the tax bands and rates.
Yes. The threshold is similar to the £325,000 level in residential transactions.
Basically, the proposal about the new tax and so on is welcomed. It moves things in a direction that will be beneficial to the industry. None of us has access to the modelling for what the tax take will be, so it is difficult to get our heads around the numbers.
Obviously, if the system is to be cost neutral and release a similar amount to what was raised in previous years, the bands will have a significant bearing on that. If the bands were set in a way that delivered a smooth and fair transition across the spectrum, that would be beneficial. The difficulty is that tweaking one end to stimulate the economy has an impact further up the line. However, as I said, we do not have access to the numbers that would allow us to understand the model.
What impact might that have on the wider property market?
I suppose that you could say that they might have had to pay the market rate, but that ultimately could affect their ability to go into employment or impose a greater burden on the benefits system, which is obviously a concern because of welfare reform and changes to housing benefit. The aim of mid-market-rent housing is to meet the needs of people who would normally be housed through social housing if there was not so much pressure on it and who would struggle to pay a market rent or to buy.
Have you done any studies on the impact of that 0.5 per cent difference on commercial properties?
That is a good point. If the tax take at that level is dampened, that will compromise the overall tax take, which is meant to offset the lower tax take that is expected at the lower level. That is a risk in the system that, I suspect, is difficult to model and predict.
Where do you think the greatest need is for housing in Scotland today? What is in greatest demand for developers to build? Is it one-bedroom houses? Is it two-bedroom houses?
If the 10 per cent tax on houses with a value of £0.25 million to £1 million has the impact of reducing house prices in overheated areas such as Edinburgh and Aberdeen, would that not be perceived by some people as a good thing?
Absolutely. It is a specific point for associations that do mid-market rents and which, because of the rules on charities, do so through non-charitable subsidiaries. It is a specific point and does not affect the majority of association developments.
Starting with residential property, I wonder whether you can you give me your best-case or central scenario for the overall impact on the housing market if the proposed tax bandings and levels as set out in the draft budget go through.
It seems to me—I do not know whether you agree—that your industry is fairly conservative, with a small “c”, in this respect. Is it lagging behind when it comes to energy efficiency and the difference that it could be making already to the houses that it builds?
Before we go on, I apologise to Mr Honeyman. In my briefing, he is listed as being from the Scottish Property Federation, but he is, in fact, from the Scottish Building Federation.
What would be the impact on revenue of the changes that have been suggested? Aside from its progressive nature, one of the important things about LBTT is the Scottish Government’s view that it wants to keep it broadly revenue neutral. We do not necessarily want to raise more tax; it is the distribution of taxes that we want to address. How would your suggestions ensure that we continue to have that revenue neutrality?
Yes, they would be, but when they step above the threshold there is an issue. The whole market is a chain, to a certain extent. We believe that some of the issues would be addressed by the introduction of new housing, as a lot of first-time buyers are not looking for existing housing. If there were more new properties on the market, that would stimulate the housing side of things.
Okay. I would like to explore the issue further with you, but I have taken up a significant amount of time and I want my colleagues to have an opportunity to ask questions. John Mason will go next, followed by Jamie Hepburn.
When you say that
“nobody knows where it is spent”,
what do you mean?
I am thinking of businesses from outside Scotland, which operate UK wide or only in the UK, deciding which part of the UK to invest in. What proportion of such inward investment projects would be below the £2 million mark and what proportion would be above the £2 million mark?
Thanks. I call a five-minute suspension.
11:04 Meeting suspended.
We think that the change in bands is too severe. It will possibly lead to some distortion in the market, with people making decisions on whether or not to proceed with a transaction. That applies to both the residential and commercial markets. We do not think that such a severe change in the bands and the rates will add a positive aspect to investment decisions made in Scotland compared with those that are made in the rest of the UK.
We have to be careful in thinking about reducing house prices. Our members’ experience has shown that home owners have a belief of what their property is worth. For many of them, when they consider selling or moving and find out that their property is worth less than they had thought, that will result in their simply not moving or having a higher expectation than they should, which creates stagnation. Our members have noted that and reported back that it has been a significant effect over the past few years, particularly when they offer part exchange for home movers. When the home mover is told how much their property is worth, they simply say that that cannot be true because they paid X or that they have heard that property prices are moving up. Accepting that their property is worth less than they thought is a difficult pill to swallow for many. If they accept it, that will impinge on their existing equity and therefore their ability to pay the tax.
As I have mentioned, we are already seeing evidence of a short-term shuffling around of housing transactions. People who had reserved a new-build property, who were planning to move in next January, February or March and who will be paying less than £325,000 are, as you would expect, keen to defer. They are asking whether there is any chance that they could push their moving date back to April in order to pay less tax. On the other hand, those who are potentially facing a higher tax bill are looking to do the opposite; they are trying to bring their purchase forward to get in under the existing rates. In cases where that will not be possible, people are looking to our members to subsidise or share some of the burden. All of that is understandable; after all, there is always some short-term movement with any tax change.
In the medium term, the bands could settle down as people become familiar with them. However, there is some confusion around. We support the change to the system and the removal of the slab rate, but some people are already assuming that, for instance, they will have to pay 10 per cent tax. That is not the case—it is 10 per cent on the amount above the band threshold. Some market communication is needed, and people need to become aware that the situation is not as bad as they might perceive it to be.
Our big concern is what happens in that middle band—I should stop calling it the “middle”—of properties valued from £325,000 to about £500,000. At this stage, we are all putting our fingers in the air and guessing. I cannot say any more, apart from mentioning the short-term movement that we are seeing in and around the proposed changeover date.
Various of your organisations have suggested amendments or tweaks to where we are. Let us start with Homes for Scotland, which has proposed a rate of 7 per cent for properties valued between £250,000 and £500,000. I note, however, that you would leave everything else as it is—for residential properties.
In terms of value, the amount of tax for projects of over £2 million is about 75 per cent of the market value, so that business is being done in an area of proportionally higher value and is being taxed at the full rate. There could be an argument that, in order to attract larger projects to the financial sectors of Edinburgh and Glasgow, we should create a stimulus partly through a process of, if not exactly easing the top rate of tax for larger projects, at least flattening the tax rate at that point so that it would not create an obstacle to investments of that kind, which could generate a lot of jobs.
That part of the market is probably not being addressed adequately at the moment. As Philip Hogg said, we have built only about half of the Scottish Government target of 30,000 affordable homes, which was set prior to the recession. The industry collapsed to the extent that it was building only 10,000 or 11,000 homes. At that point, the issue became that of who was able to access mortgage funding to buy a property. Generally speaking, it was not the people who were looking to buy one-bedroom flats but middle-income families—growing families with two people in employment and with good credit records—who could continue looking to buy new property. Therefore, that part of the market has stayed up over the past few years and a shortage of choice has been created at the lower end, in the flatted development market.
Mortgage funding is now beginning to ease, and mortgage products are available for the people who were denied mortgages a few years ago. They represent a huge part of the market that has to come back. The registered social landlord sector—housing associations—has partly filled the gap but will not make up the massive 50 or 60 per cent deficit that we have had in the housing market over the past few years.
There must be wider choice. It is critical that we have a wide range of choice for the whole housing market and that artificial barriers are not put in place that lead to people choosing to stay in less valuable property. In order for the whole market to work, there must be trading from the lower end of the market through the middle and into the upper ranges of the market.
In paragraph 3.3 of your submission, you say that it is
“surprising that the government did not take the opportunity ... to incentivise energy efficiency”.
We spent quite a lot of time on that issue when the bill was being considered. I think that the feeling then was very much that incentivising energy efficiency in the way suggested would not make a big difference to where people buy and that it would be an inefficient way, because if someone is not selling, they have no incentive to improve their house. Do you not think that it would be better to do energy efficiency by grants? Do you feel that tax is still the better way?
People pay their taxes on property and the money goes into the Government pot.
We have not had the opportunity to do that. Simply starting from a base of setting the rate and waiting to see what happens is slightly risky. Studies can be done over time, but it might take a year or two for the industry and the Scottish Government to do them.
We accept the position on revenue neutrality.
The base information could perhaps be reconsidered after the first year or two of operation. It is difficult to predict exactly how the markets would respond to this kind of change—the introduction of a new tax system in Scotland is quite a major change, and there will be a lot of sensitivity around it—and we think that, in the first year or two of its operation, its impact on the market will not be clearly understood. However, over a short period, depending on the quality of the data that is used to make market assessments, a position of neutrality could still be achieved, which could allow for some competition within Scotland. That could attract investment to the industry.
Mr Stewart, you broadly support the proposals in that respect, so I will not go into that particular area. Your submission focuses on other areas. I will not talk about low-carbon homes, because I am sure that other colleagues at the table will want to ask you about that specific issue and I do not want to steal their thunder.
Can you talk about the issues in relation to housing, such as providing houses for mid-market rent through non-charitable subsidiaries, and about the impact that the legislation might have in that respect? Your submission is a wee bit different from some of the other submissions.
Notwithstanding that, we should consider the issue further so, if you can provide more information, that would be helpful.
That is right. We have made other suggestions for reliefs in other areas, which we might cover later, but that is broadly our proposal. We have also suggested moving the minimum level up to £135,000. In the absence of the full data, we have made that suggestion to offset or rebalance things, but we do not have the full data to work out a fully costed model of what that would deliver in total tax take.
I am grateful for that reply.
Does any other witness wish to comment on what Mr Hamilton has said?
In an ideal world, it would be better to do it by grants. Scotland has very challenging climate change targets for carbon reduction and a commitment to end fuel poverty. We fully support those targets. In order to meet those challenging targets and to deal with the fact that fuel prices continue to rise, every opportunity and tool available should be used to provide the push towards, or to incentivise, energy efficiency.
We tried to make it clear in our submission that we do not think that using the tax on its own would lead fully to greater awareness of energy efficiency and greater investment. What we feel is that along with a range of other measures, such as the minimum standards that the Scottish Government plans to consult on and available funds such as the home energy efficiency programmes for Scotland scheme, the tax could provide a push in the direction of energy efficiency. We feel that, given the importance of the energy efficiency issue and the Scottish Government’s commitment to it, every opportunity should be taken.
We know how the Government pot is spent, but property tax is not ring fenced.
Thank you.
Mr Hogg, the first page of your submission talks about the balance between supporting the first-time buyer and the mid to higher values
“thereby creating too much of an imbalance within the market.”
Some people feel that there is already a huge imbalance in the market and in society, for that matter, and that some people have a huge amount of money and huge properties and others have little money and little properties, and that LBTT will redress the balance a bit. Would you be open to that argument? How do you respond to that?
I would be glad to do so.
Just for perspective, I should point out that the average price of a detached house in Edinburgh in August 2014 was under £242,000.
In a way, housing associations that are developing properties for mid-market rent might seem to be a small consideration. However, it is a huge part of their business, which tends to focus very much on areas where the market is strong and where there is pressured area status—for example, in Edinburgh and Aberdeen.
As you say, we broadly support the tax. However, there is one possible cause for concern. We understand that, where non-charitable subsidiaries of housing associations provide houses for mid-market rent, they are buying multiple properties from developers. The nature of the new tax is a result of the fact that it seeks to charge proportionally higher levels for higher-value transactions. We understand that a housing association would, in that case, pay more than it previously did for stamp duty, and we would like a further relief or exemption to avoid that issue.
Is it your contention and the view of your organisation that the higher rates on houses valued over £325,000 impacts not just the buyers and sellers of those houses but the market as a whole, as it is all interconnected?
I endorse what John Hamilton has said. We broadly welcome the model and the new system, and the removal of the steps or slabs that created distortion. We are very supportive of that. Generally, through the comments in our submission and through what I wish to discuss this morning, we are suggesting how the system could be tweaked—it is not a matter of wholesale engineering.
To pick up on a point that John Hamilton made, although we acknowledge and welcome the fact that purchasers below £325,000 are likely to pay the same or less tax, the net effect is that the tax burden on those who are purchasing properties above £325,000 has to be considerably more. I suspect that there will be little sympathy for people purchasing in the very high hundreds of thousands of pounds, but we believe that there is a critical price point between £325,000 and around £500,000, where the tax increase will be in the region of 40 per cent, which is a significant increase.
There may be little sympathy for purchasers in that area, but we need to consider not so much the emotions around that but what that might do to the marketplace. To have an effective system, we need to have price movement through all stages of the market. We need people to move upwards to vacate properties at the entry level to allow first-time buyers through. If we create stagnation or a lack of movement at any point in the marketplace, that could have the effect of stifling movement at the lower levels. That is our concern, and that is why we suggested that a new band should be inserted between £250,000 and £500,000, which would relieve the tax burden a little bit. We are still suggesting that the payment would be more, but not by as much.
Turning to the consequence or risk of that not happening, we understand that the majority of the tax will fall on the very highest 10 per cent of purchasers. There is a risk that, if those potential purchasers simply decide not to move because the tax is too high, the forecast tax intake could be less than has been considered.
We have to note that, as a result of the financial crisis and the housing market collapse, many people are sitting in properties that are probably worth a lot less than they were many years ago, so their equity in those properties is a lot less than it would have been then. Whereas, traditionally, people would have moved up the housing ladder and would have had equity that they could use to pay off the stamp duty, there is now less of that equity around. Moving upwards is therefore less affordable. We believe that that could create stagnation in some sections of the market, which, ultimately, could impact on tax take and overall movement in the market.
I am keen to let colleagues in, so I will ask questions on one more area. I have a question for Mr Hamilton on commercial property sales. At paragraph 6.1 of your submission, you state:
“This final top rate of LBTT is really the bellwether by which the property investment industry will set its yields for investible property in Scotland or proposed commercial development appraisals.”
You express some concerns about the 4.5 per cent rate. Can you talk us through that, and tell us what sort of investments you are talking about?
Thank you. Other witnesses could have responded to those questions, but they were aimed specifically at Mr Stewart.
Mr Honeyman, I was interested to see a reference on the third page of the Scottish Building Federation submission to how your respondents saw the tax burden. It says that 50 per cent of respondents thought that the tax burden should remain the same and 44 per cent thought that it should be lower, so 94 per cent thought that the tax should either stay the same or be lower. For non-residential transactions, the figures were 63 per cent and 32 per cent, which means that 95 per cent thought that it should be the same or lower. Is that just those people saying that they think that there should be no tax or very little tax?
10:00
Yes. The money that is raised from property does not necessarily go back into construction, for example.
It is indeed all interconnected. I have already used the illustration of the housing ladder. If we create stagnation—that might be the wrong word; perhaps I should say inertia—in one part of the market, that will have a push-down effect on other parts of the market. We need the chain to move fluently and freely if we are to have a healthy, functioning market.
If we could smooth out the graduation immediately above the £325,000 level, we would have a very good tax system. The proposed system is better than where we were, and we think that the improvements that we are suggesting would make it even better.
The Scottish Property Federation sees more benefit in adding stimulus to the lower end of the market and improving the quality of housing in the market rather than imposing the most severe rates of tax on the higher end of the market, which basically looks at the problem from the other angle.
Can you give an example of the kind of project that could provide thousands of jobs? Also, Gavin Brown asked specifically what proportion of projects—not what proportion of the value—would be over £2 million. I would be grateful if you could answer those two questions.
My final question is for Mr Hamilton. In his exchange with the deputy convener, he made the point that the sector needs stimulus. He seemed to be talking about the higher end, but will the tax changes not provide stimulus? We know that 95 per cent of transactions will involve either the same or less tax, and we also know that the average house price is, as I have said, about £170,000 and that a person or family going through a transaction on such a house will save nearly £1,000. Even with the Scottish average for a detached property, people will make a saving of £257. So the tax changes are a stimulus, are they not?
Out of interest, what was your reason for choosing the £250,000 to £500,000 band? Do you see that as a particular band in the current market?
I thought that he was talking about value.
Thank you.
Mr Honeyman’s submission states:
“The transition to a progressive system of taxation of property transactions will undoubtedly have a positive impact on the property market and the wider economy by eliminating current distortions in the market, caused by the existing slab structure of SDLT.”
Will you expand a wee bit on that perspective, Mr Honeyman?
No, but it goes into public services.
Yes. As I have said, we support the measures at the lower end of the market.
There is a phenomenon that we might refer to as price crowding, which happens more in a slab tax system, where the market prices properties at the most attractive tax band. If the tax band is not set correctly, too many properties get sold on the market at that price band. It is slightly easier to control that with a progressive rate of tax, but if there are severe differences between the rates and the bands, too many properties will still be offered at a certain price point in the market for the market to work effectively.
10:30
No, he did not mention value in his question. Your paper clearly refers to 75 per cent of the value, but there could be 10 projects—
Yes. I appreciate that.
I am sorry, but that is not the lower end—that is the average.
Mr Hamilton, I am interested in the Scottish Property Federation’s comments on the Treasury and the block grant. Your submission says:
“In the absence of any apparent Treasury demand on block grant reduction, we do not understand why the Finance Secretary did not opt for this approach”—
that is, projecting lower revenue, I think. Will you explain what you mean by that? We are having problems with the block grant and, as far as we understand, the Treasury is pushing to reduce it more severely.
Yes, but as we have said, the whole market has to be balanced. We believe that there should be a full range of choice in the market, because people could be pushed into making decisions that they would not otherwise make. The whole tax and collection regime seems to be based on the assumption that people who buy expensive houses do not care about the tax, but we do not think that that is right. We are talking mainly about residential property. Anyone who buys at any level of the market carefully considers the cost of the transaction. If we do not set the tax rates correctly, distortion and problems will arise as a result of our, in effect, subsidising the lower part of the market.
Let me clarify that I was asking about inward investment as opposed to the number of projects in total.
We might have touched on that point earlier. The amount of reduction in the block grant is not yet known because we do not yet know how much the introduction of LBTT will act as a stimulus or otherwise to the housing market and the commercial development market.
You can set a rate of tax and assume that the amount of revenue that you will raise will be constant, but it will not be constant. It will change partly as a result of the change in the tax regime and partly as a result of market conditions, which nobody can predict absolutely. We need to be cautious for the first year or two of the tax’s introduction until we fully understand what its impact on the market might be and, consequently, how the block grant might be adjusted. However, there will be other reasons for that happening.
Thanks. There could be 10 projects at £2 million and one at £60 million, and three quarters of the value would be in the £60 million project. I wonder how many such projects we are talking about and how many would provide thousands of jobs.
You have said that this is a subsidy, but surely it is a stimulus, which is what you have called for. It is a stimulus in an area in which more people will take advantage of it.
Yes. You made the point that the amount of tax is based on transactions and house prices, which are affected by the market and the tax. I do not know whether you have done any studies on the matter, but how would you compare those two factors? I would think that the market going up or down would have a huge impact and the tax would have little impact. Do you agree with that?
Yes, we agree with the stimulus, but the stimulus has to be funded.
I am the chief executive of a development company that sells serviced land to house builders—that is my day job. A typical transaction for serviced land only is valued at £6 million or £8 million, which is the scale at which a house builder will buy land for possibly 150 houses. House builders these days do not pay up front for development land; they pay the landowner or the main developer in instalments, so there is a cost to us in selling the serviced land. I do not have the exact number, but I think that the number of such transactions that will be impacted by the tax will be quite high. A house builder will typically buy land for 100 houses or more, and in most parts of Scotland’s housing market that will mean, just for the purchase of land, a transaction value of £4 million to £5 million if not more. That would be a fairly typical transaction value.
No, we do not agree with that. We are concerned about the idea that the industry can carry the added tax because it is only 0.5 per cent. As I said before, it is an added cost of investment and an added cost of doing business. Investors will not welcome that.
I presume that it will be, because the proposals are revenue neutral.
Do people still do business in London? The cost is quite high there.
No tax will be applied at the bottom rate, which is a good thing and is absolutely correct. However, that is the position now, so fundamentally there is no change in that respect.
Yes, but the reason why they do business in London is that it is seen as an attractive place to do business. Values in Scotland are not as high as they are in London.
The threshold has been increased by £10,000.
Yes, but no other change apart from that has been made. We do not see that move as negative at all, and we can support it. Fundamentally, though, if tax is not being collected at the lowest bracket, it will have to be collected elsewhere, and it can be collected only at the upper levels. The change from 2 per cent to 10 per cent in the tax band that is applied will lead to people deciding not to proceed with transactions that we would like to take place. There should be a more even spread of tax being applied.
If we can make Scotland an attractive place in other ways, as London is—for example, if we have a better-educated workforce because we put more into schools and universities—can we counter some of those perceptions?
Yes, but we would do that by increasing the amount of business that is done in Scotland and the amount of investment that is made here by making it an attractive place to invest.
The convener already touched on the area of mid-market rent, and I am interested in that. Have you done any studies on by how much rent would be affected, proportionally, by the proposal?
That is helpful, and I welcome the clarification. I thought that it might be a bit misleading to use the phrase “middle of the market”, but your clarification has been useful.
In your submission, Mr Stewart, you look at how the mid-market rental sector could be affected; indeed, the convener and the deputy convener have already explored the issue with you. I think that you said that the issue had been raised by one particular housing association. Could it be peculiar to areas where house values are higher than in other areas? You said that the housing association concerned was in Edinburgh. How many housing associations purchase properties for more than £135,000, which, as we know, is the nil value threshold for LBTT?
The issue is not so much about the cost of an individual house; it applies in cases in which there are multiple transactions, which are treated as a larger sum, and the tax is applied as if it were a commercial transaction. You are right to suggest that the issue does not apply across Scotland and that it does not affect every housing association. As I have said, mid-market rent is only really found in areas with pressured area status, such as the west end of Glasgow and cities such as Aberdeen and Edinburgh. I want to make it clear that the issue relates only to a relatively small proportion of transactions, and it does not apply to, for example, mid-market rents that are developed by the housing associations.
I will give you an example. During the property crisis that Philip Hogg referred to, housing associations made some quite large-scale purchases—they either bought properties from developers and completed them or bought completed properties—which they now rent for mid-market rent. Those are the kind of transactions that I am talking about. They take place in areas where younger working people or people in slightly lower-paid employment would otherwise struggle to secure a quality property.
I think that you have raised a reasonable concern. If we wanted to look further into the issue, could you refer us to any significant studies or provide us with any work that has been carried out?
I discussed the issue with the member who raised it. The concern arose from something that a tax partner at a law firm said at an event that the member attended. I would be happy to go back to that member or to approach the tax expert who raised the issue to quantify what sort of sums we are talking about and which transactions might be affected.
Let us move on to commercial properties. Most of the discussion has been about the 4.5 per cent top rate of tax. How significant is that figure compared to the figure of 4 per cent in the mind of the finance director of a company? That is clearly a factor although, as other members have pointed out, there is a whole range of other factors including the land price, the investment return and the workforce’s skill set. How significant will the figure of 4.5 per cent be when investment decisions are made?
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