Land and Buildings Transaction Tax (Scotland) Bill: Stage 2
Item 3 is stage 2 consideration of the Land and Buildings Transaction Tax (Scotland) Bill. We are joined by the Cabinet Secretary for Finance, Employment and Sustainable Growth, whom I welcome to the meeting, and Scottish Government officials Neil Ferguson, John St Clair and Mark Lynch. Members should note that because officials cannot speak on the record at stage 2, all questions should be directed to the cabinet secretary.
Members should have the marshalled list of amendments and the groupings. I will give some information before we start, so that everyone knows the ground rules. There will be one debate on each group of amendments, and I will call the member who lodged the lead amendment in that group to speak to and move that amendment and to speak to the other amendments in the group. Members who have not lodged amendments in the group but who wish to speak should indicate that by catching my attention in the normal fashion. If the cabinet secretary has not spoken in the debate on a group, I will invite him to contribute before I move to the winding-up speech. The debate on the group will conclude when I invite the member who moved the first amendment in the group to wind up.
Following the debate on each group, I will ask whether the member who moved the lead amendment in that group wishes to press it to a vote or withdraw it. If they wish to press their amendment I will put the question on it. If they wish to withdraw their amendment after they have moved it, they must seek the committee’s agreement to do so. If any committee member objects, the committee will immediately move to a vote on the amendment.
If any member does not want to move their amendment when it is called, they should say “not moved”. Please note that any other MSP may move that amendment. If no one moves the amendment, I will call the next amendment on the marshalled list.
Let us press ahead.
Section 1—The tax
Group 1 is on collection and management of the tax. Amendment 1, in the name of the cabinet secretary, is the only amendment in the group.
Amendment 1 is a minor and technical amendment to section 1(3) to change the reference to “care and management” of land and buildings transaction tax to “collection and management”. The two terms have the same meaning in law, but the term “collection and management” appears in the Scotland Act 2012 and the Landfill Tax (Scotland) Bill, and will appear in the tax management (Scotland) bill in due course. The purpose of amendment 1 is to provide consistency only.
I move amendment 1.
Amendment 1 agreed to.
Section 1, as amended, agreed to.
Sections 2 and 3 agreed to.
Section 4—Chargeable interest
Amendment 2, in the name of the cabinet secretary, is grouped with amendment 3.
Amendment 2 will replace the reference in section 4(2)(a) to “an interest, right or power” with the term
“a real right or other interest”.
That will align the definition better with terminology in Scots law. It is not intended to change what is or is not a challengeable interest in Scotland.
Amendment 3 is consequential on amendment 2 and will replace the words “interest, right or power” in section 4(2)(b) with “right or interest”. I thank Professor Ken Reid of the University of Edinburgh and Alan Barr of the Law Society of Scotland for working with officials to ensure that the bill reflects Scots property law as effectively as it can.
I move amendment 2.
The addition of the phrase “real right” in amendment 2 is to be welcomed as it represents Scots law. Getting rid of the phrase “interest, right or power” is the right thing to do.
I have a simple question about the term “other interest”. Can the cabinet secretary define that term when he winds up? It is not one that I recognise. Is the Government willing to speak to experts after stage 2 to see whether there is a way of getting a slightly sharper definition? Some practitioners have described the term “other interest” to me as amorphous. The wording in the amendment is better than what it will replace, but I wonder whether there is a way to get something even better for stage 3.
We want to put in place terminology that will enable an application to be determined within the scope of “chargeable interests”. The term “other interest” is not being inserted to create any form of catch-all provision; its purpose is purely and simply to provide some further definition within the context of the definition of “chargeable interest” for the purposes for section 4. I assure Gavin Brown that the terminology is not being used in any way to create a catch-all provision and that it is entirely within the parameters of “chargeable interest”.
Amendment 2 agreed to.
Amendment 3 moved—[John Swinney]—and agreed to.
Section 4, as amended, agreed to.
Sections 5 to 16 agreed to.
Schedule 1—Exempt transactions
Amendment 4, in the name of the cabinet secretary, is grouped with amendments 5, 6, 30 and 32.
The bill provides that all licences to occupy non-residential property should be included in the scope of the tax. We have reflected on the evidence that the committee heard at stage 1, and the amendments in this group seek to limit the taxation of licences, by means of a delegated power in the bill.
Amendment 4 will amend schedule 1 so that all transactions that relate to licences, except non-residential licences prescribed under the new section that will be added by amendment 30, will be exempt transactions. Amendment 30 provides for a power to specify, by means of subordinate legislation, particular types of licence that are land transactions and will therefore be subject to the tax. The power will give the flexibility that is needed to provide more easily for additional exceptions at a later date, should that prove necessary.
Amendment 32 will make provision in section 67 for proposed regulations about prescribed non-residential licences to be subject to the affirmative procedure, to allow for full parliamentary scrutiny of the regulations. Amendments 5 and 6 are consequential amendments to schedule 1.
In its written evidence to the committee, the Law Society of Scotland said that its committees
“broadly support the proposal for licences not to be treated as exempt interests, so that LBTT will be payable if there is consideration for the grant of the licence.”
However, it went on to say:
“Further consideration needs to be given to whether certain categories of licences do merit exemption from LBTT.”
For various reasons, the occupation of certain types of retail property is made under licence rather than by means of a lease. Such property might include retail units in airports and retail space in larger shops such as department stores and supermarkets. Based on value, such licences are the most likely to incur LBTT and are the main types of licence that I have in mind for including in regulations as being within the scope of the tax.
I move amendment 4.
The committee thought that licences broadly should not be included. I am grateful to the cabinet secretary for taking on board much of what we said.
Amendment 30 will allow the Government to set out by regulation which licences will be caught by the bill. In paragraph 6 of its written response to the committee’s stage 1 report, the Government said:
“The Scottish Government has carefully considered the evidence presented to the Committee by a range of witnesses and intends to bring forward an amendment at Stage 2 that will set out which licences are within scope of the tax.”
Will the cabinet secretary say where the Government has got to in that regard? Do we have an idea of which licences will be in the scope of the tax? Will that be made clear at stage 3 or after stage 3?
I think—
Sorry, convener.
It is okay. No other member wants to speak, so I was about to say that you may wind up.
Thank you. On Mr Brown’s point, I think that during the passage of the bill we will not define the type of licence that will be considered for LBTT; we will do that separately, through secondary legislation, as is provided for in amendment 30.
I talked about categories that I have in mind. The committee raised with me the Law Society’s supplementary evidence, which set out a variety of possibilities that could be considered as relevant in the context of LBTT. I have gone through the list and although I cannot absolutely say that this is my definitive position, I think that the most likely candidates will be retail units in airports and shops within shops. However, I want to reserve my position on the exact definition until regulations are made.
We decided to go for a position in which everything is opted out but certain licences can subsequently be opted in, as opposed to a position in which everything is opted in and we would have to opt many things out, as is the case in the bill as introduced. The proposed approach is clearer and will be more administratively efficient. Of course, there will be consultation around and consideration of the secondary legislation that emerges on the issue.
Amendment 4 agreed to.
Amendments 5 and 6 moved—[John Swinney]—and agreed to.
Schedule 1, as amended, agreed to.
Section 17 agreed to.
Schedule 2—Chargeable consideration
10:30
Amendment 7, in the name of the cabinet secretary, is grouped with amendments 8 to 11.
Amendments 8, 10 and 11 set out a revised approach to calculating the chargeable consideration for exchanges of property. Amendment 8 clarifies that the chargeable consideration should be the greater of the market value of the property and what the chargeable consideration would be in the absence of the rules for exchanges. That would include VAT where applicable. The amendments bring the bill into line with the way in which chargeable consideration for exchanges of property is calculated under stamp duty land tax, reflecting changes that paragraphs 4 and 5 of schedule 21 to the Finance Act 2011 made to schedule 4 to the Finance Act 2003.
Amendments 7 and 9 correct a minor drafting error. In two places in schedule 2—paragraphs 5(3)(a) and 5(3)(b)—the terms “relevant transaction” and “relevant transactions” have been used instead of, respectively, “relevant acquisition” and “relevant acquisitions”. Amendments 7 and 9 resolve the issue.
I move amendment 7.
Amendment 7 agreed to.
Amendments 8 to 11 moved—[John Swinney]—and agreed to.
Schedule 2, as amended, agreed to.
Sections 18 to 27 agreed to.
Schedules 3 to 7 agreed to.
Schedule 8—Relief for alternative finance investment bonds
Amendment 12, in the name of the cabinet secretary, is grouped with amendments 24, 25 and 31.
In considering the need for these amendments, my objective is to provide a similar tax outcome in relation to land and buildings transaction tax for alternative finance investment bonds as for their equivalent conventional finance product. Land and buildings transaction tax is a charge on the acquisition of a chargeable interest in land or property situated in Scotland. Issuing a conventional bond secured on a building does not give rise to any land and buildings transaction tax liability. The investor does not have a direct ownership share in the underlying asset, but merely has an interest-bearing certificate. Under an alternative finance investment bond, however, the investor owns part of the underlying asset, and interests in land and property in Scotland may be used as that asset.
Amendment 12 therefore provides a replacement for schedule 8 that provides that no tax will be charged when the land is sold to the issuer of the alternative property investment bonds, nor on the sale back of the land to the originator at the end of the bond term, and no LBTT will arise on the issue, transfer or redemption of the alternative property investment bonds. The new schedule 8 substantially replicates schedule 61 to the Finance Act 2009, in so far as it relates to stamp duty land tax.
Amendments 24, 25 and 31 are consequential technical amendments that adjust the bill to fit in better with the style and approach of the new schedule 8.
I move amendment 12.
Paragraph 5 of schedule 8 as it stands, under the heading “Interpretation”, states:
“In this schedule, ‘alternative finance investment bond’ means arrangements to which section 564G of Income Tax Act 2007 ... or section 151N of the Taxation of Chargeable Gains Act 1992 ... applies.”
In the proposed new schedule 8, which the cabinet secretary’s amendment 12 introduces, paragraph 2 provides a new definition of “Alternative finance investment bond”. It is similar to the previous definition, except that it no longer seems to include section 151N of the Taxation of Chargeable Gains Act 1992. I would be grateful if the cabinet secretary, in his summing up, could explain the implications of no longer having that reference in schedule 8.
The definition is the same in both the provisions referred to. For the sake of efficiency, we have referred to the one provision, which essentially conveys the definition in the original proposition. It is the same in both provisions.
Amendment 12 agreed to.
Schedule 8, as amended, agreed to.
Schedules 9 to 12 agreed to.
Schedule 13—Charities relief
Amendment 13, in the name of the cabinet secretary, is in a group on its own.
The Scottish Government’s response to the Finance Committee’s stage 1 report advised:
“The Scottish Government is actively working with OSCR and Revenue Scotland to consider the best approach to take as regards the charities relief qualifying requirements for the small number of organisations who buy (but do not occupy) property in Scotland purely as an investment and who use the profits from this investment for charitable purposes.”
As a result of that constructive dialogue with the Office of the Scottish Charity Regulator and revenue Scotland, I am pleased to speak to amendment 13 today.
The amendment means that a body can claim charity relief if it is registered as a charity with the Scottish charity regulator, or if it is
“a body which is ... established under the law of a relevant territory”
and is
“managed or controlled wholly or mainly outwith Scotland”,
subject to certain conditions. Those conditions are that, where the relevant territory has a charity regulatory regime, the body is registered with the charity regulator; or, if the body is not so registered, its purposes must be exclusively charitable.
To protect the tax base, charity relief will be restricted, in the case of bodies that are not entered in the Scottish charity register, to a “relevant territory”. Such territories are:
“England and Wales ... Northern Ireland ... a Member State of the European Union other than the United Kingdom, or ... a territory specified in regulations made by the Scottish Ministers.”
I move amendment 13.
I suppose that this was not expected to be a big issue, but we took a considerable amount of evidence on it at stage 1. Two things were identified that may be felt to be somewhat in competition with each other. There was a need for simplicity—a desire to avoid placing an onerous requirement on charities—and a need to ensure the bona fides or charitable credentials of organisations based outwith Scotland. I suppose that the relief is effectively a subsidy from the taxpayer in Scotland to the organisations concerned.
I accept that there will not be many such cases, but we must get the provisions right. I think that amendment 13 broadly does that, so I congratulate the Government on coming up with a sensible provision, which I hope we can support.
I, too, welcome amendment 13. It is an effective way of dealing with the problems with the original provisions that were highlighted.
I have a couple of questions. First, who will judge the conditions? Will that be a role for OSCR, or will it be something that the Scottish Government decides?
Secondly, I am intrigued by the reference to
“a territory specified in regulations made by the Scottish Ministers.”
I suppose that, at the moment, you cannot really say which those territories might be, but I was wondering what the Government might have in mind as regards how that paragraph could be applied in future.
I welcome Mr Hepburn’s comments on the Government’s attempts to resolve the issue, and also Mr Chisholm’s questions.
The role of determining whether an organisation has satisfied the test in the bill will be exercised by revenue Scotland, which will determine whether there is a tax liability to be applied. I do not foresee that being determined by OSCR, which makes judgments about charities in Scotland in fulfilment of its priorities. We will look to revenue Scotland to apply the legislation with regard to the judgment around eligibility for tax.
Mr Chisholm’s second point was about the meaning of
“a territory specified in regulations made by the Scottish Ministers.”
We have in mind countries on the periphery of the European Union—most likely Norway and Iceland. Obviously, there is a requirement for the regulations to be scrutinised when they are introduced.
Amendment 13 agreed to.
Schedule 13, as amended, agreed to.
Schedule 14—Relief for compulsory purchase facilitating development
Amendment 14, in the name of the cabinet secretary, is grouped with amendments 15 to 18.
This group of amendments widens the availability of compulsory purchase order relief to local authorities in accordance with the intentions set out in the bill’s policy memorandum. Amendment 17 is the most substantive of the five amendments in the group, so I will speak to it before turning my attention to amendments 14 to 16 and 18.
The bill as introduced reflects the current approach to stamp duty land tax whereby the local authority does not pay tax if it purchases land or property through a compulsory purchase order with the intention of transferring it to a third party to facilitate development. Amendment 17 changes the qualifying condition for the relief in paragraph 3 of schedule 14 to ensure that the relief is available to a local authority when it exercises its compulsory purchase order powers for any of the purposes stated in section 189 of the Town and Country Planning (Scotland) Act 1997. The purposes are the “development, redevelopment or improvement” of land, or any other purpose
“which it is necessary to achieve in the interests of the proper planning of an area in which the land is situated.”
Amendments 14 to 16 restrict the availability of relief to local authorities, on the basis that acquisitions by the Scottish ministers or a minister of the Crown are already exempt under paragraph 2 of schedule 1. Amendment 18 is consequential on amendment 17 and deletes the definition of “development” in paragraph 5 of schedule 14.
I move amendment 14.
I support all the amendments in the group. The cabinet secretary’s explanation of amendment 17 was helpful. However, prior to hearing it, I read the amendment, then read in detail section 189 of the 1997 act, and I wondered whether there was potential for confusion, given the breadth and depth of section 189. Would the cabinet secretary be willing to look at that section again to see whether a slightly sharper or clearer definition for people looking at the legislation is possible?
I happily undertake to look at that before stage 3 to determine whether the reference to the provision is too broad and whether the language that I used earlier—“the development, redevelopment or improvement” of land, or any other purpose
“which it is necessary to achieve”
and so on—could be amended to specify matters more helpfully in the bill. We will certainly reflect on that issue in advance of stage 3.
Amendment 14 agreed to.
Amendments 15 to 18 moved—[John Swinney]—and agreed to.
Schedule 14, as amended, agreed to.
Schedules 15 and 16 agreed to.
After section 27
10:45
Amendment 33, in the name of Malcolm Chisholm, is grouped with amendment 34.
Everyone in the Parliament is strongly committed to achieving the climate change targets. The two greatest emitters are transport and housing, and we all recognise that urgent action is required in both those areas. I do not present amendments 33 and 34 as a panacea, but I believe that they would make a useful contribution in relation to homes, and particularly existing homes, where we have the biggest problem of poor energy efficiency.
For those who think that my amendments would be a novel approach to taxation, I invoke an example from transport that was enacted fairly recently, when the UK Government legislated for a variation in vehicle excise duty based on the amount of CO2 that an engine emits. The problem that the UK Government is running into is that the legislation has been too effective—the Government is losing tax, because the measure is incentivising drivers to have lower CO2 engines. However, my amendments would address that particular worry. I concede that the cabinet secretary’s main worry on the issue might be loss of revenue, so the idea of tax neutrality is built into amendment 34. In other words, there would be winners and losers, based on the energy efficiency of homes at the point of sale.
I will try to be a bit more concrete and illustrate exactly what I have in mind. Currently, when a house is sold, an energy performance certificate is issued, with a score out of 100. For the sake of argument, let us say that the median SAP—standard assessment procedure—point, as I think it would be called, is 60, although obviously it will change as homes improve their energy efficiency. The buyer of a house with an SAP point that was one above 60 would get perhaps a 0.5 per cent reduction in LBTT. Equally, the buyer of a house that was one point below the median of 60 might get a 0.5 per cent increase in the tax.
Those are merely illustrative examples and do not show what would necessarily happen, because my amendments point towards regulations, where the details could be filled in. However, the point is that the system would be pretty easy to implement, because we already have a score on the energy performance certificate, so the adjusted LBTT could be calculated in seconds, or probably instantaneously, by a computer. I believe that there would be no practical difficulties in establishing the adjusted LBTT.
To achieve tax neutrality, we would have to change the median point from year to year. Another benefit of using regulations is that that could be done whenever it was required to achieve tax neutrality, so that those who gained would be netted off by those who lost. I think that the system would be easy to implement and would make a significant contribution by making people far more conscious of the energy efficiency of their homes. Clearly, higher energy efficiency is in people’s interests because, self-evidently, it will reduce their fuel bills. That potentially makes housing a lot easier to deal with than transport, but we know that it is not uppermost in people’s minds when they buy a house at present.
The amendments would help to move people in the direction of being more aware of energy efficiency and taking it more seriously. The buyer of a house with a high energy performance rating would not only get a discount on their LBTT but have the benefit of lower energy bills when they bought the house. The seller might well get more for their house, because it would be more attractive to buyers. They might well sell it more quickly, because, obviously, it would have an advantage in the market over houses with lower energy efficiency and higher LBTT. The approach would not be a panacea, as I said, but it would make a significant contribution to changing people’s mindset on the energy efficiency of homes.
I do not think that people think that energy efficiency is not important. However, people might think that it is not the most important issue when they are buying a house, although from the point of view of climate change, it probably is the most important issue. Amendments 33 and 34 are climate change amendments—let us be honest about that. We are committed to the targets and objectives in the Climate Change (Scotland) Act 2009 and we must take a range of measures to ensure that we meet the targets.
When we discussed the matter before, the cabinet secretary referred to the discount on council tax and said that he preferred such an approach. The two approaches are not mutually exclusive; we need to do both. If people are asking why the discount on council tax does not work better, we should explore the issue and perhaps take action to make the approach more effective. However, we need a range of measures, including financial incentives, to ensure that the energy efficiency of the housing stock is increased.
Because the detail is left to regulations, different approaches could be taken. I gave an example of how reductions might work. A further variant, which could easily be included in regulations, would be to give people an opportunity to get a rebate within the first 12 months of buying a house, if they do the energy efficiency work. Such an approach would have an effect on the neutrality point—in the sense of there being gainers and losers—in that things would be pushed in a certain direction if more people were penalised for having homes with low energy efficiency. The variant is attractive to some people. It would not have to be adopted, but it would offer another incentive for people to improve the energy efficiency of their homes.
The sustainable housing strategy will be published imminently, and I am told that one of the main outcomes in the draft version is that there should be a market premium on warm, high-quality, low-carbon homes. I hope that the cabinet secretary will not delete that outcome from the draft. What I propose would make an important contribution to placing a market premium on warm, high-quality, low-carbon homes, and I hope that the cabinet secretary will give the idea serious consideration.
I move amendment 33.
A few members want to comment—and I welcome Michael McMahon to the meeting.
I apologise for being late; I had car trouble this morning.
I will speak against amendments 33 and 34. We all sympathise with Malcolm Chisholm’s aim, which is to make all houses more energy efficient—I simply think that he is going about it in the wrong way. He talked about overall neutrality, but it is clear that there would be winners and losers. Some people might pay £1,000 more; others would pay less tax. There would still be expenditure in the context of the people to whom we would give £1,000.
I question whether that is the best way of using £1,000. If someone is buying a house for £200,000, an extra £1,000 is immaterial, whereas if someone is thinking about insulating their home or taking another such measure, £1,000 is a material sum, because it is a larger proportion of the expenditure that they are thinking about incurring. Malcolm Chisholm talked about a reduction of 0.5 per cent—on a £200,000 house that is £1,000, which is major in the context of a small investment but quite small in the context of buying a house. The approach would be a blunt instrument and it would be better to use council tax or direct grants, as we have done in the past.
I also think that the approach would be regressive. I assume that some people at the bottom will not pay LBTT at all, so there would be no help whatever for those people. I represent a poorer constituency, where quite a lot of the houses are of lower value, and I strongly resent the idea that richer people with bigger houses should get a subsidy that poorer people in smaller houses would not get.
On top of that, there are the practicalities—if a house does not change hands, there is no LBTT and no benefit and no change, so again, we would be missing a lot of houses that need to be helped. The evidence that we had at committee was that a similar provision for stamp duty land tax had been very ineffective.
This is the first tax that we are going for in the Scottish Parliament. Simplicity has been one of the key things that the cabinet secretary has argued for and I strongly believe in it myself. Although they might be well intentioned, by bringing in these tiny little variations here and there we lose the bigger picture—we lose the simplicity that we are aiming for.
I began the process of considering the bill feeling somewhat sympathetic to the notion that there could be some form of energy efficiency relief and I agree entirely with Malcolm Chisholm’s perspective that the commitment to tackle climate change is shared across the board. However, I am somewhat unconvinced by the amendments. I am not sure that they represent an effective measure. Malcolm himself referred to the evidence that energy efficiency is not a big issue for buyers. Notwithstanding his other comments, it is not clear to me how the amendments would change that attitude.
We had evidence that the scheme that has been in place—which this one does not necessarily replicate but would be a successor to—has not been particularly successful. It is not clear that we have evidence that these measures would be successful or what a scheme might look like. One of my other concerns about the amendments is that there is no meat on the bones. We do not know exactly what is being proposed.
I am not clear about the efficacy of such a measure if the seller who has invested in energy efficiency does not benefit and the person who benefits is the buyer. A retrospective application, as was suggested by Malcolm Chisholm, with a buyer putting in measures and then seeking to apply for a discount, is pretty complicated and I am not clear how revenue neutrality could be achieved in that case.
No prescriptive measure is set out. I am concerned about passing an amendment that does not really set out what the measures would be. Malcolm Chisholm said that we need to be concrete about what the amendments mean, but we cannot be because, essentially, they pass the job to the Scottish Government. It is not a concrete measure in that sense, so I thank him for lodging the amendments—it is useful to have this debate—but I am not persuaded by them.
My points have been made. I, too, was sympathetic to the idea. In particular, I was slightly frustrated by some of the evidence that we got, which could have been sharper, clearer and better. I want energy efficiency measures to happen, but I agree that this is just the wrong place for them. Land and buildings transaction tax is just not a phrase that is on everybody’s lips and if we are to really appeal to people and raise their awareness of climate change, house insulation, better building and so on, this is not the place to do it. It is not really about the detail of it—I would just much rather see the issue debated in the context of council tax and in other places that will mean something to everybody in the street, not just those who happen to be buying or selling a house.
There is a lot of validity in the arguments that have been made counter to the amendments, because a very technical thing is being introduced but it seems to be in a very simple form. However, having heard the evidence about incentivising people to think about energy efficiency in their homes, I think that in principle this is the right thing to try to do because, in the absence of anything in any other legislation, this is the vehicle that is available.
It is worth considering the amendments on the basis that they might not be perfect but, if they are agreed to just now, the bill could be further amended to address colleagues’ concerns, because I do not see any other vehicle coming forward in the near future that would address all the points that colleagues have made. This is worth considering to try to get us to a place where, when people consider house purchases, energy efficiency becomes much more high profile than it currently is according to the evidence that we heard.
11:00
I thank Mr Chisholm for lodging amendments 33 and 34, both of which seek to introduce into the bill a regulation-making power to vary the amount of LBTT to be paid on residential property transactions on the basis of how an individual property compares with the average energy efficiency rating for housing in Scotland. The proposal has been advanced by the existing homes alliance Scotland and my officials have met the proposers to consider the issues.
The Government is entirely supportive of the importance of taking steps to improve the housing stock’s energy efficiency, as highlighted by not only Mr Chisholm but a number of committee members, and indeed has taken a number of steps in that respect. Although it is important to examine all legislative instruments to determine whether any measures can be taken forward, it is vital that we assess the impact of any proposed measures. In this bill, a balance must be struck between the need for a simple, certain and efficient tax system and the likely improvements to energy efficiency that would flow from the change proposed to calculating the tax liability on the sale of residential property. Far from providing more simplicity and certainty, amendments 33 and 34 would, in fact, add complexity and uncertainty to the tax. No house buyer would know at the outset how much tax would be payable on a house of a particular value, and additional information would be required to calculate the liability. Moreover, that information would change over time and for every house sale would have to be verified carefully to ensure that the tax was calculated accurately.
Apart from the administrative complexity, the proposal would, as Mr Mason pointed out, have no effect whatever on housing in the nil rate band of the tax. In 2011, there were 1.9 million privately owned dwellings in Scotland and 70,000 sales—in other words, 3.7 per cent of the market. The land and buildings transaction tax consultation paper set out two scenarios to illustrate how a progressive tax might operate in the residential property market. In scenario 1, 70 per cent of the market would be excluded from the tax because of the threshold. That would mean that, in any given year, the tax would apply to only 1.1 per cent of the existing housing stock or 21,000 properties. Even if those figures were doubled to reflect more active market conditions, LBTT does not appear to me to represent an effective mechanism for influencing the energy efficiency of the whole of the housing stock, which is the comparison to be made with council tax and other such vehicles.
The proposal would also have a number of disproportionate effects on the housing market. For example, flat owners often find it very difficult to secure other owners’ agreement to undertake any repairs and improvements that would be material to the flats in question securing a better SAP rating in the energy assessment. In my view, it would be unfair to penalise the owners or buyers of flats and listed buildings who would like to increase their EPC rating but find that they cannot do so because of a lack of agreement. I also note that flats comprise about four in 10 of Scotland’s housing stock and 74 per cent of the housing stock in the city of Glasgow.
The proposed scheme is intended to apply to every subsequent transaction on the same house, which means that tax benefit would continue to accrue on houses whose owners had made no investment in energy efficiency measures. Another owner might have implemented a number of improvements costing, for example, £5,000 to achieve a SAP rating of, say, 60 but more tax would still be due on that property than if the scheme did not exist. Furthermore, a SAP rating of 60 can be very challenging to achieve for certain fuels such as liquefied petroleum gas.
A more fundamental point is that it is not clear whether the proposal underpinning amendments 33 and 34 would have a direct positive impact on the energy efficiency of Scotland’s housing stock. As the seller of the house might undertake energy efficiency measures while the buyer of the house would incur the tax benefit on the transaction, the proposal would provide no direct incentive for energy efficiency measures to be introduced into Scotland’s housing stock by the people who actually occupy the properties.
Although I am entirely sympathetic to the desire to improve the energy efficiency of Scotland’s housing stock and I reaffirm the Government’s intention to find additional ways to do that, I do not believe that amendments 33 and 34 contain the correct approach to achieve that aim.
I thank people for their contributions. I think that a lot of the responses are in the general territory of, “Well, it’s not going to solve the whole problem,” but I was keen to emphasise on more than one occasion that the proposal is not a panacea. It would be only one of a whole range of measures.
John Mason spoke first and he said that he prefers direct grants. I am not sure whether the cabinet secretary would agree. We have lots of schemes at the moment and some are based on loans, but in effect John Mason was proposing extra expenditure rather than the revenue-neutral proposal that I have made. Having said that, I would not, of course, object to direct grants to deal with the issue of people in homes that are exempt from LBTT. I do not accept the argument that the proposal is regressive. There would have to be a cap on how much people could benefit from it in larger homes, but the fact is that it is larger homes that emit the most CO2, and it is there that action is most urgent.
I think that the argument about simplicity was used by all the speakers. I think that the proposal would be fairly simple to implement, on the basis that all homes have an energy performance certificate. I said that the adjusted LBTT could be calculated almost instantaneously by a computer as long as we know the EPC score, so I do not accept the argument about administrative complexity.
Jamie Hepburn used the argument that I anticipated about the energy efficiency of homes not being a big issue for buyers, but part of the purpose of the proposal is to make it a bigger issue for buyers by making people financially aware of the consequences of the energy performance of buildings. The psychological effect is important as well as the other effects of the proposal.
Jamie Hepburn also objected to the fact that there is
“no meat on the bones.”
If the proposal is introduced again at the next stage, it may well be that I can work up—or somebody can help me to work up—a more detailed amendment with all the details in it, but in a sense I prefer the simple version because it allows the Government of the day a lot more flexibility to change the detail. That is the usual argument that the Government uses for proposing that detail is put in regulations. However, the issue can certainly be addressed when the proposal is debated at the next stage. I tried to put some meat on the bones with my illustrative examples, but more of that could be provided if that would help Jamie Hepburn and others at the next stage.
The cabinet secretary also used some of the arguments that his colleagues had used in relation to simplicity and the absence of an effect on housing in the nil rate band. I do not want to complicate things too much, but I add that we could, in regulations, also offer an incentive for those homes within the system. Clearly, that would mean that those with larger homes with low energy efficiency would have to pay even more, but potentially and theoretically there is no reason why we could not include those homes in the system if we wanted to do so.
John Swinney raised the issue of flats. I am certainly conscious of that given the constituency that I represent, not to mention the fact that I have lived in a flat all my life. In general, tenements have better energy efficiency ratings than stand-alone homes. I take the point about securing the agreement of owners, but the fact is that, in order to achieve our climate change targets, we are going to have to do something about tenements, just as we have to do something about the housing stock as a whole.
The cabinet secretary concluded with the idea that there would be no incentive for sellers. I dispute that because, apart from the obvious incentive that anyone has to reduce their fuel bills, under the proposal, the seller would be in a better position—the words “market premium” spring to mind again—when he or she was selling the house, because they would have an advantage over other homes with lower energy efficiency ratings and they might well both sell more quickly and achieve a higher price, so I do not believe that there is an absence of incentive for the seller of a home.
I think that the measure that is proposed in amendments 33 and 34 is useful. To be honest, when it was first proposed to me a few weeks ago, I shared some of the concerns and, indeed, scepticism that people have voiced today. However, the more I have thought about it, the more I have believed that it could make a useful contribution.
Of course, what I propose will not deal with all the issues. Jean Urquhart said that she would rather see the issue dealt with through the council tax. We have a council tax measure—that is good, but we should find out why it is not working more effectively. However, the two things are not mutually exclusive. Jean Urquhart said that LBTT was not a term on everyone’s lips—at least not yet, because most people do not even know what it stands for—but the reality is that it will be on the lips of anyone who buys or sells a house. I believe that it is appropriate and useful to introduce energy efficiency measures in this bill.
I will press amendments 33 and 34.
The question is, that amendment 33 be agreed to. Are we agreed?
Members: No.
There will be a division.
For
Chisholm, Malcolm (Edinburgh Northern and Leith) (Lab)
McMahon, Michael (Uddingston and Bellshill) (Lab)
Against
Brown, Gavin (Lothian) (Con)
Gibson, Kenneth (Cunninghame North) (SNP)
Hepburn, Jamie (Cumbernauld and Kilsyth) (SNP)
Mason, John (Glasgow Shettleston) (SNP)
Urquhart, Jean (Highlands and Islands) (Ind)
The result of the division is: For 2, Against 5, Abstentions 0.
Amendment 33 disagreed to.
After schedule 16
Amendment 34 moved—[Malcolm Chisholm].
The question is, that amendment 34 be agreed to. Are we agreed?
Members: No.
There will be a division.
For
Chisholm, Malcolm (Edinburgh Northern and Leith) (Lab)
McMahon, Michael (Uddingston and Bellshill) (Lab)
Against
Brown, Gavin (Lothian) (Con)
Gibson, Kenneth (Cunninghame North) (SNP)
Hepburn, Jamie (Cumbernauld and Kilsyth) (SNP)
Mason, John (Glasgow Shettleston) (SNP)
Urquhart, Jean (Highlands and Islands) (Ind)
The result of the division is: For 2, Against 5, Abstentions 0.
Amendment 34 disagreed to.
Sections 28 and 29 agreed to.
Section 30—Notifiable transactions
Amendment 19, in the name of the cabinet secretary, is grouped with amendments 20 to 23.
This group of five amendments sets out the position with regard to when a land transaction that involves a non-residential lease should be notified to the tax authority. Amendment 20 is the substantive amendment in the group. It is couched in the negative and provides for four situations that involve non-residential leases that are not notifiable land transactions. By implication, all other non-residential leases would be notifiable. Amendment 19 and amendments 21 to 23 are consequential technical amendments that will adjust the bill to fit better with the style and approach of the new provisions that are brought forward by amendment 20.
I move amendment 19.
Amendment 19 agreed to.
Amendments 20 to 23 moved—[John Swinney]—and agreed to.
Section 30, as amended, agreed to.
Sections 31 and 32 agreed to.
Section 33—Further return where relief withdrawn
Amendments 24 and 25 moved—[John Swinney]—and agreed to.
Section 33, as amended, agreed to.
Sections 34 to 39 agreed to.
Section 40—Payment of tax
Amendment 26, in the name of the cabinet secretary, is grouped with amendments 27 to 29.
11:15
To ensure prompt payment and deliver administrative efficiencies, the bill requires tax agents to submit a complete tax return and pay any tax due before any application to Registers of Scotland in respect of a land register or books of council and session can be accepted. During the consultation on the proposals for land and buildings transaction tax, certain stakeholders raised concerns in relation to that proposal, based on the fact that in Scotland a buyer or tenant cannot obtain a real right over land or buildings until registration has taken place. Some stakeholders were concerned that that could create an unnecessary risk for buyers and that it might have unintended knock-on effects on third parties such as lenders.
Following further discussions with the Law Society of Scotland, the Scottish Government believes that the
“arrangements satisfactory to the Tax Authority”
wording in section 40(4), coupled with the introduction of advance notices under the Land Registration etc (Scotland) Act 2012, will address those concerns. However, as it is drafted, the bill could be interpreted in such a way that someone who makes arrangements satisfactory to the tax authority could escape liability to pay tax if those arrangements fall through. This group of four technical amendments will ensure that the fact that the tax authority can accept a return on the basis of arrangements being in place to pay any tax due or that Registers of Scotland can record a disposition on the same basis will not affect the overall liability to pay. The effect of these amendments will be to ensure that no tax avoidance activity will be able to take place by relying on section 40(4).
I move amendment 26.
Amendment 26 agreed to.
Amendments 27 and 28 moved—[John Swinney]—and agreed to.
Section 40, as amended, agreed to.
Sections 41 and 42 agreed to.
Section 43—Return to be made and tax paid before application for registration
Amendment 29 moved—[John Swinney]—and agreed to.
Section 43, as amended, agreed to.
That ends stage 2 consideration of the bill for today. I thank the cabinet secretary and his officials for their attendance. Stage 2 proceedings will continue at the committee’s next meeting on 5 June.
11:17
Meeting continued in private until 11:20.