The next item of business is a debate on motion S4M-15694, in the name of John Swinney, on the Land and Buildings Transaction Tax (Amendment) (Scotland) Bill. I ask members who are leaving the chamber to do so quickly and quietly.
17:46
I am pleased to open the debate on the general principles of the Land and Buildings Transaction Tax (Amendment) (Scotland) Bill, which I introduced on 27 January this year. I begin by thanking all those who gave evidence—written and oral—to the Finance Committee and those, such as the Law Society of Scotland and Revenue Scotland, who have given and continue to give freely of their time to work collaboratively with the bill team to resolve some of the more thorny technical matters in order to ensure, as far as practical, the bill’s smooth implementation.
I am grateful to the convener and members of the Finance Committee for their scrutiny of the bill at stage 1 and particularly for committee members’ co-operation in working to an expedited timetable for the bill. I welcome the committee’s support for the general principles of the bill. In light of the expedited bill timetable, I wrote yesterday to the convener of the Finance Committee setting out the Scottish Government’s response to the committee’s stage 1 report. I hope that it was helpful to have that response in advance of the debate.
The Land and Buildings Transaction Tax (Amendment) (Scotland) Bill introduces a 3 per cent land and buildings transaction tax supplement payable on the purchase of additional dwellings, such as buy-to-let or second homes. Subject to parliamentary approval, that means that, from 1 April 2016, anyone buying a residential property in Scotland of £40,000 and above who already owns a residential property, here or anywhere in the world, will pay an additional 3 per cent land and buildings transaction tax on the whole purchase price of the property, unless they are simply replacing their existing main residence.
The Scottish Government wishes to maximise the opportunities for first-time buyers to get a foot on the property ladder in Scotland. The bill will counteract the potential distortive effect of the introduction of a new stamp duty land tax higher rate of tax in the rest of the United Kingdom from 1 April 2016. Without a land and buildings transaction tax supplement, it is likely that the stamp duty land tax higher rate of tax would make it relatively more attractive for investors to buy up homes in Scotland, particularly at the lower end of the market, thus increasing competition for first-time buyers and therefore the danger of undermining the Scottish Government’s policy objectives in this area. The Government’s motivation has therefore been clearly expressed to deal with circumstances that we believe are made more likely by the tax changes that are being made in the rest of the United Kingdom.
I am aware from the evidence that was presented to the Finance Committee during its stage 1 scrutiny of the bill that some stakeholders have expressed disappointment at the 3 per cent supplement that applies to the whole purchase price, and that they view that as a return to a form of slab tax, which prevailed in the former stamp duty land tax in Scotland. As I have already indicated, the Scottish Government wishes to do all that it can to empower first-time buyers to purchase their first home. The rationale for applying the supplement to the whole purchase price is that it will impose a greater tax charge on purchases of additional property at lower-value transactions. That is where the demand for properties for investment purchases or holiday homes could make it difficult for first-time buyers to enter the market to purchase a main residence. For example, someone who buys a property as their main residence for £100,000 will not pay any land and buildings transaction tax, but someone who buys the same property for an investment or as a second home will pay £3,000.
As I indicated in my statement on the draft budget last December, it is estimated that the supplement will raise between £17 million and £29 million in 2016-17 after taking account of behavioural effects, including any impact on underlying LBTT revenues. The Scottish Fiscal Commission has endorsed the estimate as reasonable, recognising the uncertainties that are posed by the lack of Scottish data on such transactions. I have discussed those issues with the Finance Committee, and the Government has erred on the side of caution in estimating the volume of revenues that could arise from the tax change, given the potential behavioural implications of the application of the tax charge.
The Scottish Government considers that the housing system should cater for a variety of needs and demands across all tenures. I certainly recognise the need to balance support for home ownership and first-time buyers without discouraging significant and beneficial investment in residential property for rent. The Scottish Government has supported the purpose-built private rented sector since 2013; we funded the “Building the Rented Sector in Scotland” study; and we provided funding for a dedicated private rented sector champion tasked with ensuring that action is taken to boost the supply of high-quality private rented sector homes at scale.
After reviewing and reflecting on the stage 1 evidence, I am pleased to say that the Scottish Government concurs with the recommendation in the Finance Committee’s stage 1 report that provision should be made in the bill for a relief from the land and buildings transaction tax supplement for buyers who are purchasing six or more residential properties in one transaction. The Scottish Government intends to lodge a stage 2 amendment to give effect to that.
On reliefs in general, I note from reviewing the stage 1 evidence that there are suggestions for a variety of reliefs from the supplement. The Scottish Government recognises that the housing market changes over time and, where practical and affordable, it wishes to do what it can to create sound and sustainable market conditions. However, I am firmly of the view that, as with the land and buildings transaction tax system, a period of time will be required to enable the land and buildings transaction tax supplement to become embedded and for sufficient financial and statistical data to be collected to enable informed policy decisions to be made in the future. The position on reliefs with particular reference to the land and buildings transaction tax supplement will be kept under review as part of the on-going process of devolved tax planning and management. However, I hope that the specific relief that I have set out in relation to the bulk purchase of properties gives further clarity to the marketplace and can enable commitments to be made, with the assurance that I have given.
When I gave oral evidence to the Finance Committee, I did not close the door on implementing a grace period for transactions. I have carefully reviewed the stage 1 evidence and considered further helpful input from the Law Society of Scotland and Revenue Scotland. I am not convinced of the strength of that evidence as yet, but I do not want to entirely close the door on implementing a grace period.
The approach that I have elected to take is to ask Revenue Scotland to monitor the position between the LBTT supplement provisions coming into force and 30 October 2016. The data that is collected will enable the Scottish Government to take an informed view as to the need or otherwise for a grace period and what such a period should be. There are provisions in the bill that enable individuals to claw back charges that may have been applied over an 18-month period. I hope that that provides sufficient reassurance to Parliament, but I reiterate that I remain open to considering the matter in due course.
I am aware that a number of stakeholders have called for an early and comprehensive review of the impact of the supplement. I welcome the Finance Committee’s comment in its stage 1 report that
“developing an understanding of the impact of the supplement will be complex and will take time.”
I concur with that view. To review the impact of the supplement will require at least one complete year of data, given the seasonality of housing transactions, the likely forestalling behaviours and the longer-term trends in the housing market. The Scottish Government intends to update Parliament on the outcome of that review in the 2018-19 draft budget, in accordance with our undertaking in the written agreement on the budget process to provide
“a commentary on outturn figures for the devolved taxes for the most recent year, including any variance between outturn and forecasts.”
The bill as introduced proposes that the supplement will not apply to the purchase of a residential property where missives were concluded before 16 December 2015—the date of the Scottish draft budget statement—even when the transaction does not settle until after 1 April 2016. Where the missives for the transaction were concluded on or after 16 December 2015, the supplement is proposed to apply if the transaction settles on or after 1 April 2016.
The Scottish Government has listened carefully to the stakeholder community and intends to lodge an amendment at stage 2 whereby the supplement will not apply to the purchase of a residential property where missives were concluded before 28 January 2016 but the transaction does not settle until on or after 1 April 2016. That adjustment delivers a fairer result for buyers who may have been putting in offers for property or making reservations for new-build property before the detail of the proposed supplement was in the public domain—that is, when the bill and accompanying documents were published on the Scottish Parliament’s website.
I move,
That the Parliament agrees to the general principles of the Land and Buildings Transactions Tax (Amendment) (Scotland) Bill.
I call on Kenneth Gibson to speak on behalf of the Finance Committee.
17:57
It is with pleasure that I speak on behalf of the Finance Committee in this stage 1 debate on the Land and Buildings Transaction Tax (Amendment) (Scotland) Bill. I thank the members of the Finance Committee, the clerks and those who gave evidence to help us to reach our conclusions expeditiously, along with our adviser, Professor McEwen, who produced an excellent summary of the responses while working to a particularly tight deadline.
Following publication of the UK autumn statement, in which the chancellor set out plans to introduce a 3 per cent stamp duty land tax supplement on the purchase of additional homes from 1 April 2016, the Scottish Government set out similar proposals in its draft budget. It has emphasised the need to introduce the supplement at the same time as the supplement comes into force in England and Wales in order to mitigate the risk of any related impact on the Scottish property market. That meant that the usual consultation process could not be undertaken and standing orders were suspended to facilitate a truncated timetable for parliamentary consideration of the bill.
The committee notes that those circumstances were far from ideal, but we recognise the reasons behind them and we accept there must be an element of flexibility in the scrutiny arrangements. In essence, there is a need to balance the risk of not responding immediately to UK tax changes and the risk of unintended consequences arising if we enact legislation without first conducting full consultation and comprehensive parliamentary scrutiny. The need to achieve such a balance is clearly an issue of real importance to Scotland’s public finances, and it might arise more frequently in future. We intend to reflect carefully before setting out in our legacy report recommendations on how best to balance the competing priorities.
We issued our own consultation, albeit that it was shorter than usual, and we received over 50 responses ranging from those from professional bodies to those from individuals who were concerned about the bill’s potential impact on their property dealings. We then took evidence from a range of stakeholders before hearing from the Deputy First Minister.
On the bill’s policy objectives, the key intention is to ameliorate market distortions that will potentially arise from the proposed UK supplement and have an impact on first-time buyers, in particular. Some stakeholders expressed concern that no impact assessment has been undertaken and that there is a lack of data on the Scottish second home and buy-to-let markets. We have therefore recommended that the Government commission research and take steps to improve the data on those areas.
Ministers should closely monitor the supplement’s impact on the housing market and conduct a comprehensive review when sufficient information is available. We also recommend that the Scottish Fiscal Commission provide a commentary on the first six months of the supplement’s operation, including on the impact of forestalling, by the end of November. I note that the Deputy First Minister said today that it might be more appropriate to wait until we have a full year’s data. We will deliberate on that.
We heard mixed views on the policy’s potential impact on first-time buyers. Some stakeholders expressed concern that the supplement would act as a deterrent to investment in new housing developments; others suggested that if the supplement is not introduced, investors from outside Scotland could push up property prices.
The committee recognises the Government’s policy intentions regarding first-time buyers, but we are also conscious of the need to protect housing supply for those who rent their homes through choice or necessity. We heard that the vast majority of landlords own fewer than five homes, with large numbers owning just a single buy-to-let property. Concern was expressed that the supplement might not deter investment in housing and might simply result in additional costs being passed on to tenants via higher rents. We consider it essential that the Government closely monitor the supplement’s impact on rent levels, particularly in areas where rents are already high.
To mitigate the possible deterrent effect on investment in Scotland’s housing stock, stakeholders suggested numerous reliefs. Unfortunately, it was not possible for us to scrutinise every proposal in the time that was available, and we remain conscious that exemptions and reliefs have the potential to provide loopholes and opportunities for tax avoidance. We therefore invite the Government to comment on stakeholders’ suggestions.
The committee was convinced of the case for introducing specific reliefs for registered social landlords, local authorities and student halls of residence. The availability of quality, affordable housing for people on lower incomes is a key challenge in Scotland, and we heard that many local authorities and registered social landlords have engaged in significant house purchase activity, which has helped to support the construction industry during the recent period of market recovery. It is clear that student halls of residence are designed in a way that makes them unsuitable for anyone who is seeking to buy a home. We therefore recommend that reliefs be introduced for those types of properties, which should mirror the reliefs that are provided for in the Land and Buildings Transaction Tax (Scotland) Act 2013.
We also support a relief for larger-scale investors who purchase six properties or more. Such a relief was proposed by numerous professional bodies and would be consistent with the provisions of the 2013 act, which provides:
“Where six or more separate dwellings are the subject of a single transaction ... those dwellings are treated as not being residential property”
for tax purposes.
The UK Government consultation seeks views on reliefs for bulk property purchases. We are mindful that the provision of such a relief south of the border but not in Scotland could adversely affect investment in the Scottish market. Furthermore, we consider it unlikely that such a relief would cover small-scale investors, who are more likely to be in direct competition with first-time buyers to purchase properties. Nevertheless, we remain mindful that the relief might need to be reviewed if there are signs of a negative impact on the number of new housing developments, due to a decrease in the number of buy-to-let properties being purchased by smaller investors.
We are also clear that a grace period should be provided to cover circumstances in which a purchaser temporarily and unintentionally owns two properties simultaneously as a result of a sale being delayed or falling through.
I am pleased that the Government has confirmed its intention to amend the bill to introduce such reliefs and I look forward to discussing the issues further with the Deputy First Minister at next week’s stage 2 proceedings.
The committee supports the general principles of the bill but remains conscious that, although the proposed supplement might appear relatively straightforward, a number of potentially complex issues remain, which will require careful consideration at stages 2 and 3.
In particular, there is a need to introduce appropriate reliefs that balance the needs of first-time buyers, the needs of people who rent their home and the interests of house builders and investors. That will not be easy, especially given the insufficient data on the current structure of the housing market in Scotland. It is therefore essential that the impact of the bill is closely monitored and a comprehensive review carried out when sufficient data are available.
I look forward to considering those important issues further at stage 2 and I look forward to hearing members’ speeches in the debate.
18:04
I welcome much of what the cabinet secretary had to say in his speech, and his recognition of the Finance Committee’s recommendations and the concerns expressed by stakeholders. It is important to take a step back and consider the context, because land and buildings transaction tax was levied for the first time last year, and when the cabinet secretary set out his quite comprehensive plans for the tax—well over a year ago now—it was a matter of a couple of months before he had to think again and bring new proposals back to the Parliament, to respond to George Osborne’s proposals for stamp duty land tax. Although I would observe that that was probably the fastest change of tax policy in history, I do understand the cabinet secretary’s desire to have a similar fiscal position in Scotland to that in the rest of the UK.
Now we are being presented with the land and buildings transaction tax supplement. Yes, it was indeed the self-same chancellor, George Osborne, who introduced that in his autumn statement—a new 3 per cent supplement for stamp duty land tax—and the cabinet secretary moved quickly to copy it. There is now to be a land and buildings transaction tax supplement of 3 per cent on purchases of additional residential properties for those transactions over £40,000.
I know and accept that there are strong arguments for us to have the same fiscal regime both north and south of the border. Our housing markets are similar and they can and will be influenced by each other, but there are times when we might choose to do things differently. There are obviously times when we want to respond very quickly, so that behavioural responses to tax changes are minimised. That has implications for consultation with stakeholders and for scrutiny by this Parliament, and I know that it has not been an entirely satisfactory process for stakeholders, or indeed for members of the Finance Committee, because of the speed at which things have been done.
I hope that the Government and the Finance Committee will consider that in the future so that we get the balance right. I think that it is an issue that we will want to return to, because I can foresee circumstances in which that could happen time and again, and I do not think that any of us want a situation in which speed means bad legislation with unintended consequences.
In that context, I draw members’ attention to the House of Commons Treasury Committee report—not something that I read often, but it is now on my list. It is fair to say that members of that committee are not at all enamoured by the stamp duty land tax supplement and there is a strong suggestion from them that there should be no rush to implementation because of its complexity and because of the possibility of unintended consequences. They also feel that it would actually be detrimental to the buy-to-let property market and they recognise the importance of that sector for labour mobility, which is a point that I will return to in a minute.
I am not sure—and I do not know whether the Deputy First Minister is any clearer than I am—whether there is a possibility that George Osborne might delay implementation, or indeed substantially change the proposal, but it raises some really interesting questions. Given that the Scottish Government has aligned itself with the proposal from the UK Government, does that mean that the introduction will be delayed in Scotland if it is delayed in the rest of the UK, or does the Deputy First Minister intend to proceed regardless? Perhaps it provides an opportunity to think things through, but in any event we need stability and certainty, not chop and change.
I know that there are real issues that the Government must grapple with, but we will decide on the Scottish budget for 2016-17 tomorrow. Assumptions have been made about the revenue that will be generated by the supplement, but we will have no idea what the UK Government’s response to the Treasury Committee’s report will be until at least mid-March. That is my understanding.
Does Jackie Baillie accept that the supplement is a good method by which to protect local people from second home owners?
I do, and if there was any lack of clarity about that, I apologise to the member. I absolutely accept that, but there are unintended consequences that we should be alive to, and we should not simply look narrowly at the principle and nothing else.
There are wider questions and there are issues in the bill that need to be addressed. There are areas for exemption that the Scottish Government has said that it will think about further before coming back to the committee at stages 2 and 3. I would like to consider a couple of those areas. There are many more that the committee has spelled out in pages and pages of possible reliefs.
The Scottish Government has a laudable intention of attracting new skilled workers to Scotland. Will any such person who is a home owner abroad and who wants to buy a home here be liable for the additional 3 per cent? If that is the case, I do not think that that sends out the message that the Government wants to send, which is that we would welcome to this country those with the skills that we need. How will ownership abroad be identified and the additional tax be enforced? Alternatively, will Scots who want to buy a second home abroad be liable for 3 per cent of the purchase price? I think that the answer is yes, although that could well be unpopular. However, how would it be checked and enforced? The issue is the practical implementation.
What about women leaving abusive relationships, when, for whatever reason, the woman’s name remains on the ownership of the house that she leaves? Will she be liable for the additional 3 per cent? If a person who is a home owner purchases a half-stake in a flat that is valued at £75,000, will they become liable for 3 per cent of £75,000, liable for 3 per cent of £37,500 or not liable at all? I suggest that there is a complexity that we need to understand, and I wonder whether, in a short period of time, we would not arrive at unintended consequences.
In conclusion, I turn to the revenue that the tax is likely to raise. It is fair to say that the amount raised with residential LBTT is less than expected. So far, we have nine months of outturn data but the modelling of behavioural impacts is critical. The LBTT supplement would have benefited from more assessment but the Scottish Government keeps telling us that there is limited data available. We clearly need more. We want to know the Government’s forecasting methodology. The yield was anticipated to be between £45 million and £70 million, but it has been revised down dramatically to between £17 million and £29 million. If it is simply a tax to generate more income, it is a very inefficient way of doing that.
Perhaps the House of Commons Treasury Committee has got it right and we should proceed with less haste. However, I recognise the dilemma for the Scottish Government, so we will support the general principles of the bill at decision time.
18:12
It appears that, both north and south of the border, the measure is far more complex than it first appeared when it was announced in the autumn statement. I had the voice of former minister Jim Mather ringing in my ears as I reviewed the bill. Mr Mather once said to me, “Gavin, there is no such thing as unintended consequences; there is only lazy thinking.” That had an impact on me then, and it has had an impact on me since.
Having thought carefully about the bill, I am of the view that the risk of inaction is greater than the risk of unintended consequences flowing from legislative action. On that basis, I was prepared to support the bill at the committee stage and we will vote in favour of the principles of the bill come decision time today.
That said, there are clearly significant issues to resolve—I think that the Government would accept that. However, if the UK Government were to delay the legislation south of the border—I have no inside information on that—we should give serious consideration to delaying it here as well. Mr Swinney would face no criticism from this side of the chamber were that to happen. Nevertheless, I assume that the bill will be passed south of the border within the current timescale, and my working assumption is that the same will happen here.
There are risks, and Kenneth Gibson captured one of them quite neatly. In trying to help first-time buyers, we must be sure that we do not end up making them worse off if we see a reduction in development. One of the arguments that was put to the committee was that a number of developments that go ahead rely on what are called off-plan sales—pre-sales that are made in advance of the development being built—and it is much more likely that anyone involved in a pre-sale will be a buy-to-let operator or a second home owner as opposed to somebody on their first mortgage. Some developments rely on pre-sales to secure funding, and if some of those developments do not go ahead, there could be a greater danger of lack of supply than we currently face. As much analysis of that as can be done ought to be done.
Gavin Brown will accept that, in committee, I asked for empirical evidence to support that supposition but none was forthcoming. Therefore, although the suggestion has been made, there is currently no data—at least, none was made available to the committee—to back it up.
Mr McDonald makes a fair point. We do not have empirical evidence, but there is anecdotal evidence, which we got from a number of witnesses. That is one of the reasons why all members of the committee took the view that the Government should commission specific research on the impact of buy-to-let properties and second homes on the property market as a whole. So far, the Government does not seem to be minded to do that, but I encourage it to do so as it progresses the bill.
I welcome a number of the comments that the Deputy First Minister made, particularly those that he made in relation to local authorities and registered social landlords, large-scale investors and changes to the transitional period, all of which were sensible and fair.
In my final minute or so, I want to focus strongly on the concept of the accidental second home owner. The Deputy First Minister is not minded to make changes in that regard at this stage, but he said that the door was not entirely closed. That gives me great satisfaction and I will push hard against that door to ensure that it reopens, because the issue stuck out like a sore thumb. It is a specific objective of the bill not to capture those who simply replace their existing main residence, but it is obvious to me that there is a severe risk that a significant number of people in that category will be captured. If a family that has grown and wants to move to a bigger house to accommodate that purchases a new house first and the sale of their existing home does not take place on the same day, whether because it falls through or simply takes longer to happen, as well as having to get some form of bridging loan, the family would immediately be liable for the 3 per cent surcharge, which could amount to thousands upon thousands of pounds. Even purchases that are currently outwith LBTT entirely because they are below the threshold could be affected. That is a severe risk.
I see that my time is up. I will return to that significant issue, because I think that it is the biggest weakness in the bill, and I genuinely want to work with the Government to get it right at stage 2.
You will have the opportunity to return to that issue in about four minutes’ time, Mr Brown. [Laughter.]
I call Mark McDonald. You have four minutes, but you could perhaps push it to five.
18:17
Oh, gosh. I am now under pressure to give Gavin Brown time to collect his thoughts for his summing-up speech, and perhaps—who knows?—to give him some content for it.
There are a few points that need to be highlighted. The committee took a great deal of evidence in a very short space of time, and some of the evidence that we received was very interesting. Jackie Baillie asked whether the bill was just one that was designed to generate more revenue. That belies the fact that the genesis of the bill lay in a desire to ensure, first, that a policy change at UK level would not have a detrimental impact and, secondly, that first-time buyers would be protected against buy-to-let investment.
A point that I made in my intervention on Gavin Brown—this is something that I became slightly frustrated by during the course of the committee’s evidence taking—is that a great deal of certainty was being derived from supposition and anecdotal evidence. There did not seem to be a lot of hard data and empirical evidence to back it up. That made it very difficult for the committee to reach a true value judgment on some of the issues that were raised by the witnesses who appeared before us.
That is why it is critical, as Gavin Brown said, that we get some more data to serve as a bedrock for analysis of impacts on the housing market. As the policy rolls out alongside LBTT over a period of time, we will have the opportunity to bottom out forestalling effects and other variations. That will give us a better idea of the impact and will help us to build a slightly better picture of what is happening in the housing market.
We had some discussion about how to deal with reliefs in the committee report, but it does go into great detail about the range of reliefs that have been suggested from various quarters. In bringing in any system of reliefs, there is an inherent risk of creating significant loopholes that could undermine the policy intention of the legislation. The committee has very properly asked the Scottish Government for its view on the basket of reliefs, but at the same time it has focused on a couple of specific reliefs that it feels are necessary. The Deputy First Minister has responded very fairly to those suggestions.
The third issue that I have wrestled with and which I mentioned during evidence taking at committee is the flexibility that the process that we currently go through in Parliament affords to the Scottish Government. That point does not necessarily relate to this specific piece of legislation. Let us compare the flexibility afforded to the Scottish Government in announcing or reacting to tax changes with that afforded to the Chancellor of the Exchequer. The chancellor can stand up at his dispatch box and announce a change that will take effect at midnight that evening, should he choose to do so, but under the processes in this Parliament the Scottish Government has to signal its intention some months in advance of changes taking place. We can compare the opportunity that our process allows for behavioural change and forestalling to take place with that which exists at Westminster.
That is something that needs to be explored in more detail in future, perhaps by a successor finance committee, but it would also be welcome in the next session of Parliament to get some more thinking from the Scottish Government on the issue.
The main thrust of LBTT is that, first and foremost, first-time buyers are protected in terms of their purchases.
I see from the Presiding Officer that, despite being told that I could push my speech to five minutes, I am now being told to hurry up. I will do so.
When LBTT was first proposed, I noted that one of its intentions was to stimulate purchases at the lower end of the market. Anecdotally, estate agents in my constituency tell me that they are seeing a stimulation of the market at the lower end. I am confident that that is happening, but I think that the bill is a necessary measure to ensure that that situation is protected.
Thank you, Presiding Officer.
Thank you, Mr McDonald. You actually got to four minutes and 45 seconds, so you did quite well. We now go to the wind-up speeches—Gavin Brown has four minutes.
18:22
I have to say that it has been a fairly short debate.
I want to return to the issue of the accidental second-home owner, because I genuinely think that that could be a pretty big problem and one that, both south of the border and here, has not been considered enough.
As we heard in the policy memorandum, we deliberately want to exclude from the tax those people who are just replacing their existing main residence. In the scenario where a family is selling their house but the sale does not go through—it can fall through for any reason—or the scenario where the house just takes longer to sell than anticipated, they would be liable to pay a sum of money for LBTT, ranging from a few hundred pounds to potentially tens of thousands of pounds. Of course, that money could ultimately be clawed back, but it would have to be paid in the first instance.
In my view, that process is wrong for a number of reasons. First, it seems to me unduly punitive because not only are people in those scenarios likely to need some form of emergency finance or bridging loan, but they will have the additional stress of an instant bill that has to be paid before the transaction can go ahead. In many cases, that might just take them to the financial brink and result in a transaction not going ahead, which could have implications elsewhere in the housing chain.
Very few transactions take place in a vacuum, unless a first-time buyer is involved. There are quite often chains, as they are called, where a number of transactions rely on another transaction taking place; if one of those falls through because of the tax having to be paid up front, it could take people over the financial brink, which could have a wider impact on the housing market. It strikes me that the process is unduly bureaucratic, particularly when the Government’s stated intention is not to bring those people within the realms of the legislation.
I feel that it could be a deterrent for the market as a whole. Many of our constituents are cautious, and we could end up with a scenario whereby, just as a matter of fact, people buy only once they have sold. We could end up with a market in which people sell their house first and consider buying only after they have sold, to make absolutely sure that they are not liable for those thousands of pounds.
In some cases, that might be the right decision, but if that were the effect on the marketplace, I think that it could have a detrimental effect on the economy, and it could slow down parts of the housing market in a way that we do not want. If we allow that to continue for six months, it may take some time to right the market. Therefore, I think that we are better to look carefully at it now.
Of course, Revenue Scotland may prefer the option that Mr Swinney suggested. That would make it cleaner and simpler for it. However, I urge Mr Swinney, in his closing speech, to say that he will at least speak, in particular, to more of the legal profession—those who represent consumers and house buyers—to get as much data as he possibly can before taking a final view. If he does that, I am convinced that he will hear from some of them—expressed strongly—that something needs to be done.
In the committee, we heard that one option is to have a grace period. I certainly think that that is one way of working, although I do not think that the suggestion of a 30-day grace period goes anywhere near far enough. If a housing sale falls through, it is pretty unlikely—although not impossible—that the average house sale will then happen in 30 days. Looking at different websites, it seems to take on average eight to 12 weeks to sell a house, so if the grace period were to be 30 days, a lot of people would be captured.
I urge the Deputy First Minister to give serious consideration to the issue. He said that he is not closed to the idea, and I would personally commit to working with him to find a solution. Although I will not have any constituents post-April, I genuinely believe that a number of constituents would see the issue as a huge matter of regret. We would then have to take emergency action to deal with it. Therefore, I urge the Deputy First Minister to indicate in his closing speech that he would be willing to discuss that matter.
Thank you, Mr Brown. Come May, I will not have any constituents either.
18:27
I will sum up for the Labour group.
It has been a very short debate, but we have heard the key points. During evidence sessions, the Finance Committee heard about the stated aim of the policy, which is to minimise market distortion in Scotland due to inward investment from the rest of the UK, given the Tories’ introduction of a similar initiative there. The Scottish Government considers that such inward investment could crowd out first-time buyers.
We support the principles underpinning the tax, which are to reduce rent-seeking behaviour—whether to crowded-out first-time buyers from buy-to-let landlords or others, or to second-time home owners.
The draft budget estimates that the additional dwelling supplement would raise about £23 million in the first year. That sum is equal to the shortfall at Dundee City Council. If Mr Swinney wanted to earmark it for Dundee City Council, I would be very happy about that. Seriously, though, the Chartered Institute of Housing suggested earmarking that revenue for housing, and I suggest that the Scottish Government ought to consider that. I read in the cabinet secretary’s response to the committee about how the Scottish Government is trying to promote home ownership and about how it has initiatives. If it puts the money raised—the £23 million—into that, it would help more people to get into housing.
I have some concerns about the bill. As everybody said, there is a lack of credible data. The data used is largely anecdotal. I have mentioned that, in 2009, colleagues and I were involved in the Scottish Government report that produced a baseline of the private rented sector. One of the recommendations in that report was about improving the data, and I see that there have been very small improvements. However, to understand how the market works, we need to understand the motivations for people owning more than one home and renting it out—whether that is accidental landlords or people who have inherited property. We just need to understand how the private rented sector is evolving.
The proportion of households in the private rented sector has increased, from 5 per cent in 1999 to 14 per cent now. That expansion has been encouraged by the Scottish Government. Rent increases in Scotland over the last year were 1.6 per cent in the private rented sector. If we are concerned about market distortion, a rental increase of 1.6 per cent might not be as competitive as down south.
Registers of Scotland noted that, between 2005 and 2015, approximately one in five purchases with a mortgage in Scotland was made by first-time buyers. However, it is important to be mindful of the context. Annual house price inflation was 5.6 per cent in England, 0.8 per cent in Wales, 2.9 per cent in Northern Ireland and -0.9 per cent in Scotland. That is the latest data from the Office for National Statistics. The price of properties for first-time buyers is also increasing but at a decreasing rate, which suggests a slowdown in the housing market. I am a bit concerned that there might be unintended consequences.
There is a question of whether the lack of first-time buyers is a supply-side issue. It might also be a demand-side issue because of the general state of the economy and employment. Revenue Scotland is currently preparing guidance to help taxpayers and their agents to understand the additional dwelling supplement.
Like Gavin Brown, I have concerns about accidental second home owners. I urge the cabinet secretary to think about the grace period. A family who buys a house that takes a couple of months to renovate would be affected by the additional dwelling supplement. Other people might be affected by the supplement if they have accidentally ended up owning a house because something has happened down the chain. A family who are relocating to Scotland from England and have bought a home in Scotland while trying to sell their home in England might be affected.
I know that the cabinet secretary said that he is going to take evidence over the first six months, but there should be a longer grace period, especially given how quickly the LBTT has been implemented. I welcome his comments about the provision in relation to 28 January, but I really hope that he extends the grace period further.
There are some questions that the cabinet secretary ought to address. What will happen if the Conservative Government at Westminster decides to delay the implementation of the tax? How confident is the cabinet secretary that the 3 per cent supplement will change behaviour, prevent second home ownership, and prevent the crowding-out of first-time buyers? I look forward to hearing the cabinet secretary’s comments on those questions.
18:33
I am always delighted to be able to provide Jackie Baillie with helpful advice. I am not sure whether she was seeking advice, but she asked me whether a charge will be applied when someone is buying a home overseas. I am not sure whether she was just looking for advice to enable her to undertake her financial planning—perhaps for her retirement, which is, of course, a long way off. The tax will be chargeable only if the additional home is in Scotland. If somebody who lives overseas buys an additional home in Scotland, the charge will require to be paid in Scotland and, of course, the buyer will be required by law to report that through Revenue Scotland returns. If an individual who is not normally resident here buys a property in Scotland, they will have to indicate on their return whether they own other property somewhere else in the world.
Will the Deputy First Minister give way?
I will be happy to provide Jackie Baillie with more advice.
Does that mean than an incoming worker, who might be ordinarily resident somewhere else and is buying a property in Scotland, will be liable? Does the Deputy First Minister think that that will discourage people from coming to Scotland in the first place?
If that person owns a home in another country, the charge will apply. People will have to weigh up all the different issues. Many individual circumstances could be applied in the debate but the ones that we have just discussed will apply in the scenario that Jackie Baillie proposes.
Jackie Baillie, Lesley Brennan and Gavin Brown all made reference to the grace period, which I want to address. I have weighed up the evidence and I am not satisfied that the bill does not provide sufficient flexibility to address the issue. However, I am happy to have further discussions about it in the run-up to stages 2 and 3 to enable me to consider further some of the issues that are involved. There is, of course, provision in the bill for ministers to introduce a relief from the supplement, so we can make such provision in due course. That would not ordinarily require to be undertaken as part of stage 2 or stage 3. As I have said, I want a period for us to monitor the issue—until 30 October. We will at that point have a better impression of what is involved.
Jackie Baillie mentioned a possible delay to the UK legislation. I have no information about that, but I certainly have no intention of delaying legislation in Scotland. We took the decision that was prompted by the decision of the UK Government because I could foresee market distortion as a consequence of its decision. We have established the approach and it supports our general policy approach of wishing to protect individuals’ opportunities to access the property market. It is important that that is reflected in the bill.
One of the other issues that came up in the debate was raised by the convener of the Finance Committee and by Mark McDonald, relating to arrangements that we will increasingly have to consider. Of course, we will have to consider them for ever more, now that it is clear that we will have the powers that were envisaged under the Smith commission and the associated tax powers that will come from that. We will have to consider, in our own budgeting and financial process, how we make timeous changes to our legislation to ensure that we have in place appropriate tax arrangements. I cannot pretend that it is ideal that we have made the changes in such a short time, but we have given them a lot of thought and I am committed to further consideration of the detail during stage 2 and stage 3 to ensure that we cover any circumstances and scenarios that may arise that would require us to make more changes to legislation.
I am confident that the Government has listened carefully to stakeholders’ feedback to ensure that we are properly prepared and equipped to address further issues. However, it would be helpful for the Government—and for the incoming Government after the election in May—to have the benefit of the reflections of the Finance Committee on processes and procedures for Parliament to ensure that we can scrutinise as effectively as possible.
Mark McDonald also talked about the wider question of reliefs that would be envisaged under the legislation. I have set out some of my thinking and am committed to reflecting further on that as the bill takes its course through Parliament.
Jackie Baillie also mentioned a number of points and scenarios in respect of the detail and complexity of the legislation. I accept that there is complexity, but I think that it is incumbent on the Government to ensure that we explore as many scenarios as we can, and I am satisfied that we have in place the processes to enable that.
Mention has been made of the Government’s revenue estimates. We had what were, essentially, headline estimates of between £45 million and £70 million of expected revenue from the supplement. I have settled on £23 million—a mid-range estimate that takes into account the effects of forestalling and of behaviour changes. I believe that it is a prudent assessment for the Government to have made and one that is relevant to the budget that we have set out.
I reaffirm to Parliament the willingness of the Government to engage in detailed scrutiny on those questions and to ensure that the issues that are raised with us by stakeholders are fully and adequately addressed as we take the bill through its remaining stages.
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