Scottish Landfill Tax (Prescribed Landfill Site Activities) Order 2014 (SSI 2014/367)
The next item is evidence from the cabinet secretary on the Scottish Landfill Tax (Prescribed Landfill Site Activities) Order 2014. The cabinet secretary is joined by David Kerrouchi, Neil Ferguson and John St Clair, from the Scottish Government—[Interruption.] Sorry, I am as blind as a bat. Greig Walker has replaced John St Clair. I do apologise.
I invite the cabinet secretary to make an opening statement about the order. I remind him not to move the motion on the order at this point.
Thank you. Section 6 of the Landfill Tax (Scotland) Act 2014 provides a power to prescribe certain landfill site activities. If a prescribed landfill site activity is carried out at a landfill site, the activity is treated as a disposal of waste to landfill at that site. The list of prescribed activities in article 3 of the order relates to temporary engineering activity on a landfill site.
The order has its origin in case law concerning the United Kingdom landfill tax. In a case that Waste Recycling Group brought against Her Majesty’s Revenue and Customs in 2008, the English Court of Appeal ruled in favour of Waste Recycling Group and concluded that engineering activities on a landfill site were classed as non-waste disposals to land and, as such, fell outside the UK tax. In response to the ruling, the following year the UK Government introduced the Landfill Tax (Prescribed Landfill Site Activities) Order 2009, to bring temporary engineering works into the scope of the tax.
It is the Scottish Government’s view that all waste material that is deposited at a landfill site should be subject to Scottish landfill tax, unless there is a specific exemption, it is deposited in a non-disposal area, or it is used in the final restoration of the site. Building on the experience of HMRC in that case, the order brings material from temporary engineering works on a landfill site into the scope of the tax. Activities relating to the permanent restoration of a landfill site are not, however, within the scope of the Scottish landfill tax, as we would not want to create any barriers to the full and final remediation of a landfill site.
11:45A draft order was included in the public consultation paper “Scottish Landfill Tax—A Consultation on Subordinate Legislation”, which was published last June, and 85 per cent of respondents agreed with the proposed order. Ernst and Young LLP and SITA UK Ltd, for example, suggested that mirroring the UK list of prescribed activities would alleviate concerns about the possibility of waste tourism.
Thank you, cabinet secretary. I have no questions myself, so I invite questions from other committee members.
The argument has been put that, if somebody builds a road somewhere else, especially if they are using recycled material, there would not be any tax on that, so it is illogical that there should be a tax on a road built within a landfill site. Can you explain why you think that that is not the case?
The rationale is to ensure that activity that gives rise to waste that has to reach a landfill destination is properly taxed in that process and in all circumstances. The fact that it is activity that is happening within a landfill site does not absolve it of that necessity to be captured by the consistency of the tax.
Is it not the case that the same material used outside the site to improve access and transportation would not attract the tax? Is that not the point that is being made by the people who are concerned about that? The Chartered Institute of Taxation has said:
“it is difficult to see why building a road inside a landfill site should be considered as a disposal of waste when the same activity done outside a site would not be.”
That is the source of concern.
The waste is clearly being generated within that site and it has to be disposed of. That is the point that we have to focus on. The point that Mr Chisholm makes about a development outside a landfill site is that it would involve the use of materials from a variety of different sources, on which whatever tax has to be charged would have been charged. The distinction that we are making is that, where a road construction is undertaken within a landfill site, the purpose of doing that should have given rise to landfill tax if the material had been removed from that site and had gone to a landfill site. We are establishing the point that, if there is waste, there has to be a charge on that waste even though it may be used within a landfill site. That is the simplest way in which I can try to express it.
I will reflect on your response.
That is most generous.
If there are no further questions, we will move to the debate on the motion. I invite the cabinet secretary formally to move motion S4M-12007.
Motion moved,
That the Finance Committee recommends that the Scottish Landfill Tax (Prescribed Landfill Site Activities) Order 2014 be approved.—[John Swinney.]
Motion agreed to.
The committee will now publish a short report to Parliament setting out our decision on the order.
Land and Buildings Transaction Tax (Prescribed Proportions) (Scotland) Order 2014 (SSI 2014/350)
Land and Buildings Transaction Tax (Qualifying Public or Educational Bodies) (Scotland) Regulations 2014 (SSI 2014/351)
Land and Buildings Transaction Tax (Definition of Charity) (Relevant Territories) (Scotland) Regulations 2014 (SSI 2014/352)
Our next item of business is to take evidence from the cabinet secretary on three items of subordinate legislation relating to land and buildings transaction tax. I invite the cabinet secretary to make an opening statement.
I will take in turn each of the three land and buildings transaction tax instruments, which are all subject to the negative procedure.
The Land and Buildings Transaction Tax (Prescribed Proportions) (Scotland) Order 2014 sets out prescribed proportions for two reliefs from LBTT, multiple dwellings relief and acquisition relief. To encourage investment in the private rented sector, schedule 5 to the Land and Buildings Transaction Tax (Scotland) Act 2013 provides tax relief for land transactions involving a purchase of multiple dwellings. Relief is provided based on the calculation of the average price of each dwelling being acquired—applying residential rates of tax to each dwelling, rather than charging the higher rates of tax on the full purchase price of the multiple dwellings. Paragraph 12 of schedule 5 allows Scottish ministers to prescribe a minimum proportion of LBTT that must be paid so that the amount of relief is in effect capped. The instrument sets the minimum proportion of LBTT that must be paid where the relief applies.
The consultation paper, “Moving Forward with Land and Buildings Transaction Tax: A Consultation on Proposed Subordinate Legislation”, which was published in May 2014, proposed setting a minimum prescribed proportion of 40 per cent of LBTT that would be payable in the absence of multiple dwellings relief. Eleven respondents opposed the proposal on the basis that it would result in a higher tax liability than under stamp duty land tax. Taking into account the views of those who responded to the consultation, I have concluded that an appropriate prescribed proportion for multiple dwellings relief should be 25 per cent. The logic behind that is that, under the slab tax structure for SDLT that applied at the time, where the average price per dwelling being acquired fell in the nil-rate band, a tax floor was charged at 1 per cent of the whole average purchase price of the dwelling. If the chargeable consideration for the whole transaction exceeded £1 million, as it often did, although not in all cases, in the absence of a relief tax would have been charged at a rate of 4 per cent. As 1 per cent is 25 per cent of 4 per cent, in my view 25 per cent is a comparable prescribed proportion for relief under LBTT.
Part 3 of schedule 11 to the 2013 act provides for acquisition relief where
“a land transaction is entered into”
by a company
“for the purposes of or in connection with the transfer of an undertaking or part of an undertaking”
of another company. The instrument prescribes the proportion of LBTT that must be paid where the transaction qualifies for acquisition relief. Eleven respondents to the consultation paper addressed this question, with views divided on the proposed rate of 15 per cent for the prescribed proportion of acquisition relief from LBTT. Under the SDLT slab tax structure, tax was charged using this relief at 0.5 per cent on the chargeable consideration; if the chargeable consideration exceeded £1 million, tax would otherwise have been charged at 4 per cent. As 0.5 per cent is 12.5 per cent of 4 per cent, 12.5 per cent is a comparable prescribed proportion for the relief under LBTT. The instrument therefore provides for a prescribed proportion for acquisition relief of 12.5 per cent.
I turn to the Land and Buildings Transaction Tax (Qualifying Public or Educational Bodies) (Scotland) Amendment Order. Paragraph 17 of schedule 2 to the 2013 act sets out what counts as chargeable consideration where a public or educational body enters into a sale and leaseback arrangement with another party—a non-qualifying body. Paragraph 17(2) sets out which public or educational bodies are qualifying bodies for the purposes of paragraph 17.
Paragraph 2(c) refers to any body listed in schedule 2 to the Further and Higher Education (Scotland) Act 2005. Subparagraph 3(c) provides a power to vary the list of qualifying bodies mentioned in paragraph 2. The Post-16 Education (Scotland) Act 2013 removed institutions from the 2005 act that should still have the exemption at paragraph 17(2)(c) of schedule 2 applied to them.
It is my intention that publicly funded colleges and universities should continue to be in the scope of paragraph 17(2) of schedule 2 to the LBTT act. The Land and Buildings Transaction Tax (Qualifying Public or Educational Bodies) (Scotland) Amendment Order therefore amends the list of qualifying bodies in paragraph 17(2) accordingly. It is a purely technical change to reflect the changes to the higher education landscape following the Post-16 Education (Scotland) Act 2013.
The Land and Buildings Transaction Tax (Definition of Charity) (Relevant Territories) (Scotland) Regulations 2014 make use of the power in paragraph 15(3)(d) of schedule 13 to the LBTT act to add to the list of qualifying territories from which a body that is registered as a charity may originate and be eligible to claim charities relief, which reflects tax treaties that the United Kingdom has with other territories.
The LBTT consultation paper, which was published on 1 May 2014, invited views on a draft of those regulations. There was agreement from the 10 respondents to the Scottish Government’s proposal that the Republic of Ireland and the Kingdom of Norway should be added to the list of relevant territories for the purposes of charities relief. One respondent suggested that the Principality of Liechtenstein should be added to the list of relevant territories in order to ensure consistency with changes that will come into effect for SDLT under the Taxes (Definition of Charity) (Relevant Territories) (Amendment) Regulations 2014. To keep Scotland’s LBTT legislation in line with UK tax treaties, the Land and Buildings Transaction Tax (Definition of Charity) (Relevant Territories) (Scotland) Regulations 2014 add the Republic of Iceland, the Kingdom of Norway and the Principality of Liechtenstein to the list of relevant territories for the purposes of charities relief.
Just for the avoidance of doubt, I may earlier have inadvertently referred to the Republic of Ireland, but I meant the Republic of Iceland.
We were about to swoop on that very point.
I thought that I would get in there before you, convener.
Wise.
I have no questions, but do members have any?
I have one question that relates to the first instrument, which is SSI 2014/350. The policy note says, right at the end, under the heading “Impact Assessments”, that the Government’s
“approach to the prescribed proportions for multiple dwellings relief and acquisition relief broadly mirrors the current approach for SDLT”.
I wonder about the timing of that. Does it refer to the previous approach to SDLT or does it take into account the autumn statement? If it is the latter, that is fine; if it is the former, is any reworking needed?
It applies to both, because we are applying a mechanism rather than an absolute number. It is a mechanism, so it will deal with all circumstances.
Therefore, your statement that the approach
“broadly mirrors the current approach for SDLT”
would stand.
Essentially, that is because we are introducing a mechanism.
On the same instrument, I may be wrong, but I remember that, when we discussed the changes that we would make in legislation, multiple dwellings were one area in which there was a vulnerability to tax loopholes in the existing legislation, and we were determined to make our legislation as tight as possible. Are you content that we are not making our legislation more vulnerable in relation to multiple dwellings?
The sentiment to which Jean Urquhart refers is very much my sentiment and approach. That is evidenced by two things in the way in which we pursued the legislation. One was the minimisation of reliefs. There will be fewer reliefs in our legislation than there are in the current arrangements. The second was the work that we undertook in the Revenue Scotland and Tax Powers Bill, which Parliament supported, on the establishment of a very high level of intolerance of tax avoidance through the general anti-avoidance rule. I see that the general anti-avoidance rule is now attracting the commentary that I hoped it would, which is basically that it is a pretty high bar and that a very intolerant approach is being taken in Scotland. I am pleased that the tax commentary is now reflecting that intent in our legislation.
Although we have reduced the number of reliefs, we have not eliminated them altogether, because reliefs have a legitimate part in the tax system. I am confident that the arrangements that I put in place here are consistent with that approach.
You gave a logical mathematical explanation for the change from 40 to 25 per cent, but I wonder whether it will have any impact on future private housing investment. Was that a relevant factor and is the change from 40 to 25 per cent significant in that regard?
12:00
It is interesting that Mr Chisholm highlights my mathematical logicality on 25 per cent. I do not suppose that I could say that 40 per cent was graced by mathematical logic. At least we got there in the end.
The point was well made by the respondents, which I think is the point that Mr Chisholm makes, that at 40 per cent the relief might well have had an impact on multiple dwellings. I hope that by the actions that I have taken I have addressed the issue.
The instrument says that multiple dwellings relief will not be available to private landlords
“who acquire properties in a piecemeal fashion”.
What does that mean in practice?
It essentially means that this is an approach that we are taking to a cumulative project development on a particular site, where there is an opportunity to create a range of properties that would then be available for onward transaction, as opposed to a private landlord who might like to apply for this type of relief here, there and everywhere—if that makes the distinction.
What Mr Swinney said is absolutely correct. The relief is for where the landlord is acquiring multiple dwellings in one transaction—in one go—whereas the piecemeal approach would be to buy them one at a time. It would not apply to a landlord buying properties one at a time with a view to building up a portfolio, but it would apply to a landlord buying eight or 10 or 50 properties in one go. It is to encourage investment in the private rented sector, as the cabinet secretary said at the outset.
That has exhausted the questions from members. I thank the witnesses from today. We will have a 30-second break to allow the cabinet secretary and his colleagues to leave.
Our next item of business is to consider the negative instruments on which we have just heard evidence. I invite comments from members. Members have no comments.
At the start of the meeting, the committee agreed to take item 7 in private, so I close the public part of the meeting.
12:03 Meeting continued in private until 12:04.