15th Report, 2013 (Session 4): Land and Buildings Transaction Tax (Scotland) Bill

SP Paper 270 (Web Only)

SL/S4/13/R15

15th Report, 2013 (Session 4)

Land and Buildings Transaction Tax (Scotland) Bill

Remit and membership

Remit:

The remit of the Subordinate Legislation Committee is to consider and report on—

(a)

(i) subordinate legislation laid before the Parliament;

(ii) any Scottish Statutory Instrument not laid before the Parliament but classed as general according to its subject matter;

and, in particular, to determine whether the attention of Parliament should be drawn to any of the matters mentioned in Rule 10.3.1;

(b) proposed powers to make subordinate legislation in particular Bills or other proposed legislation;

(c) general questions relating to powers to make subordinate legislation;

(Standing Orders of the Scottish Parliament, Rule 6.11)

Membership:

Nigel Don (Convener)
Jim Eadie
Mike MacKenzie
Hanzala Malik
John Pentland
John Scott
Stewart Stevenson (Deputy Convener)

Committee Clerking Team:

Clerk to the Committee
Euan Donald

Assistant Clerk
Elizabeth White

Support Manager
Daren Pratt

Land and Buildings Transaction Tax (Scotland) Bill

The Committee reports to the Parliament as follows—

INTRODUCTION

1. At its meetings on 29 January and 19 February 2013 the Subordinate Legislation Committee considered the delegated powers provisions in the Land and Buildings Transaction Tax (Scotland) Bill at Stage 1 (“the Bill”)1. The Committee submits this report to the Finance Committee as lead committee for the Bill under Rule 9.6.2 of Standing Orders.

2. The Scottish Government provided the Parliament with a memorandum on the delegated powers provisions in the Bill (“the DPM”)2.

OVERVIEW OF THE BILL

3. The Land and Buildings Transaction Tax (Scotland) Bill was introduced in the Scottish Parliament by the Scottish Government on 29 November 2012.

4. The Bill is the first of three related Bills being brought forward as a consequence of measures enacted in the Scotland Act 2012. Under the terms of that Act the Scottish Parliament is empowered to make provision in relation to Scotland for devolved taxes. Section 80I of the Scotland Act 1998 provides that a tax charged on the land transactions listed in that section is a devolved tax. This Bill makes such provision to be called the Land and Buildings Transaction Tax (LBTT). It is intended that this replace the current UK Stamp Duty Land Tax (SDLT) in relation to Scotland.

5. In the consideration of the DPM at its meeting on 29 January, the Committee agreed to write to Scottish Government officials to raise questions on the delegated powers. This correspondence is reproduced in the Annex.

DELEGATED POWERS PROVISIONS

6. The Committee considered each of the delegated powers in the Bill.

7. The Committee determined that it did not need to draw the attention of the Parliament to the following delegated powers:

Section 5(4) – Power to vary the interests in land that are exempt interests;

Section 17(2) – Power to amend Act or make other provision about chargeable consideration;

Section 27(3) – Power to vary reliefs;

Section 30(5) – Power to amend £40,000 notification threshold;

Section 39(1) – Power to amend 30 day period in which returns must be made;

Section 42(1) – Power to make regulations about applications to defer payment in case of contingent or uncertain consideration;

Section 45(6) – Power to make regulations to specify scheme as not being a unit trust scheme;

Section 46(1) – Power to make regulations in relation to open-ended investment companies;

Section 52(2) – Power to provide that a person other than the Scottish Ministers is the Tax Authority;

Section 54(1) – Power to make provision about review and appeal of Tax Authority decisions;

Section 58(9) – Power to change what counts as residential property;

Section 62(1)(b) – Power to prescribe date other than the date of completion as the effective date;

Section 66 – Power to make ancillary provision;

Section 69(2) – power to commence;

Schedule 1, paragraph 8 – Power to vary the transactions that are exempt transactions;

Schedule 2, paragraph 17(3) – Power to modify qualifying public or educational bodies;

Schedule 5, paragraph 14 – Power to prescribe minimum prescribed amount for multiple dwellings relief;

Schedule 8, paragraph 1 – Power to make regulations granting relief concerning alternative finance investment bonds;

Schedule 15, paragraph 5 – Power to prescribe additional public bodies for the purposes of compliance with planning obligations relief;

Schedule 16, paragraph 4 – Power to prescribe additional public bodies for the purposes of transfers involving public bodies’ relief.

8. The Committee’s comments and, where appropriate, recommendations on the other delegated powers are detailed below.

Section 24(1) – Duty to specify tax bands and rates
Power conferred on: The Scottish Ministers
Power exercisable by: Order
Parliamentary procedure: Affirmative procedure for the first order, negative thereafter

Background

9. Section 24 provides the mechanism by which the tax bands and the percentage tax rate for each band are set. Separate bands and rates can be specified for residential and non-residential property transactions. For each type of transaction there must be a nil rate tax band and at least two other bands, the tax rate for which is progressively higher.

10. The basic taxation structure of LBTT is therefore set out in section 24 in terms of the number of bands and how they inter-relate. However, the bands and the tax rate are set using subordinate legislation. The first time the power is exercised it is subject to the affirmative procedure. Any subsequent exercise of the power is subject to the negative procedure.

Comment

11. The Committee sought further justification from the Scottish Government as to the choice of negative procedure for the second and subsequent exercise of the power. It was not clear to the Committee why the potential use of the power is any less significant on subsequent occasions and therefore why reduced scrutiny is appropriate.

12. The Scottish Government asserts in its response that subsequent changes “will be in response to market conditions”. The Government also indicates that “it is essential that the Scottish Government is in a position to respond hastily to provide certainty for the property market in Scotland” in response to changing market conditions. Finally, the Scottish Government draws a comparison with the power to set non-domestic rates under section 7B of the Local Government (Scotland) Act 1975 which is subject to the negative procedure.

13. The Committee does not doubt that the current administration only intends to use the power on subsequent occasions to fine tune the tax bands and rates in response to market conditions. However, the administration need not bind itself to do so and cannot bind future administrations at all. The Committee requires to consider the potential use of the power and should not be constrained by the views expressed by the current administration as to how it would be exercised. It remains the case that the power could be used to vary substantially the number of bands and the rates applicable within those bands subject to the limitations set out in paragraph 9. The Committee considers this to afford the Scottish Ministers of the day a significant discretion as to its tax raising policy. If the Ministers consider that the power merits the affirmative level of scrutiny on the first exercise of the power then the Committee sees no reason why it might not require that level of scrutiny on each occasion.

14. In response to the suggestion that the power may need to be exercised as a matter of urgency, it is for the lead committee to assess how likely that may be in practice. The Committee observes that it takes a full 40 days for a negative instrument to be free from annulment, whereas an affirmative instrument could be approved and therefore free from parliamentary challenge more quickly than that if parliamentary timetabling permits. The more significant difference between the two procedures in terms of timing is that an affirmative instrument cannot be approved at a time when the Parliament is not sitting. However, it is possible to provide a suitable procedure to deal with situations of emergency during such periods which require to be approved on the Parliament’s return in order for the relevant instrument to continue to have effect. The Government’s concerns as to the ability to act in haste are therefore not incompatible with a requirement for parliamentary approval.

15. The Committee has considered the power to set non-domestic rates cited by the Scottish Government. However it considers that the power currently under consideration is broader in its scope given that it can be used to set different bands and rates. It is more sophisticated and could have greater effect on patterns of revenue raising, the property market and other aspects of financial investment.

16. For these reasons the Committee considers that the Scottish Government has not provided a compelling argument for a reduction in the level of scrutiny on the second and subsequent exercise of the power. The Committee therefore recommends that the power should always be subject to a form of affirmative procedure. The Committee would not be resistant to a suitable form of emergency affirmative procedure being available to ministers in the event that the need to exercise the power was to arise during a period when the Parliament was not sitting.

Section 47(1) – Power to make regulations about residential property holding companies
Power conferred on: The Scottish Ministers
Power exercisable by: Regulations
Parliamentary procedure: Affirmative procedure (if amends an Act), otherwise negative

Background

17. Residential property holdings companies (RHPCs) are used as vehicles for the acquisition of property which does not result in a transfer of title in the ordinary manner. Instead, through a transfer of interests in the company, a person becomes entitled to occupy property owned by the company.

18. Section 47 confers power on the Scottish Ministers to provide for qualifying transfers of interests in RPHCs to be treated as land transactions and to be chargeable transactions. Subsection (4) goes on to specify in more detail what sort of provision this power can include but this is not an exhaustive list. In short this is a very wide power to set out how RHPCs are to be treated for the purpose of LBTT. The power can be used to modify the Bill once enacted and is not subject to any particular restriction. The power will be subject to the affirmative procedure if it amends primary legislation, but if it merely modifies the effect of primary legislation by setting out how LBTT is to apply in freestanding regulations it will be subject to the negative procedure.

Comment

19. The power is very broad and the Committee wished to explore whether the Scottish Government’s policy on RHPC’s could be further refined during the passage of the Bill which would allow the power to become more limited. The Committee also questioned the level of scrutiny proposed.

20. The Scottish Government advises that it plans to bring amendments forward at stage 2 and that these are likely to lead to the deletion or narrowing of the powers presently in the Bill. The Scottish Government considers that the ability to act swiftly is material to their view on the level of scrutiny that is appropriate. The Committee refers to its comments in paragraph 14 above in response to this argument.

21. Given that the Scottish Government has indicated that the scope of this power is likely to change significantly at stage 2 the Committee will await sight of the proposed amendments before reaching a view on the power. The Committee requests that the Scottish Government provides the Committee with early sight of any proposed amendments to facilitate the Committee’s consideration of the power as amended. The Committee refers to its comments in paragraph 16 above regarding procedural requirements in situations where the power might be required to be exercised in an emergency.

Section 55(1) – Power to make regulations about the application of the Bill to leases
Power conferred on: The Scottish Ministers
Power exercisable by: Regulations
Parliamentary procedure: Affirmative procedure (if amends an Act), otherwise negative

Background

22. Section 55 confers a duty on the Scottish Ministers to make regulations which provide for the application of this Act in relation to leases. Subsection (2) sets out some of the things which the regulations may cover but is not an exhaustive list. The regulations may modify primary legislation including the Act. The affirmative procedure applies if the regulations amend primary legislation but otherwise the negative procedure applies.

Comment

23. The power is very broad and affords the Government a wide discretion in the application of the LBTT regime to leases. This raises significant issues of policy which, as the Bill stands, are to be postponed to subordinate legislation.

24. The Committee wished to explore whether the Scottish Government’s policy on the application of LBTT to leases could be further refined during the passage of the Bill which would allow the power to become more limited. The Committee also questioned the level of scrutiny proposed.

25. The Scottish Government advises that it intends to bring forward amendments to the Bill in respect of the application of LBTT to non-residential leases at stage 2. These may well lead to deletion of the regulation making power in section 55. In recognition that this power concerns important issues of policy the Government has already given the Finance Committee an undertaking to share proposed amendments at the earliest opportunity. The Scottish Government considers that the ability to act swiftly is material to their view on the level of scrutiny that is appropriate. The Committee refers to its comments in paragraph 14 in response to this argument.

26. Given that the Scottish Government has indicated that the scope of this power is likely to change significantly at stage 2 the Committee will await sight of the proposed amendments before reaching a view on the power. The Committee requests that the Scottish Government provides the Committee with early sight of any proposed amendments to facilitate the Committee’s consideration of the power as amended. The Committee refers to its comments in paragraph 16 above regarding procedural requirements in situations where the power might be required to be exercised in an emergency

Section 67(1) – Inherent power to make ancillary provision

Background

27. This ancillary power is not referred to in the DPM as it is not a freestanding power. It is parasitic on any other power conferred by the Bill and will therefore be subject to the procedure which applies to the primary power to which it attaches.

28. The Committee sought clarification from the Scottish Government as to why it was necessary to provide that ancillary powers are available inherently as part of every delegated power in the bill in addition to the separate stand-alone ancillary powers provided in section 66.

Comment

29. The Committee accepts the explanation provided by the Government is correct in identifying the difference between the inherent power in section 67 and the stand alone power in section 66. The Committee also accepts that the power in section 66 is appropriate and that it should be subject to the affirmative procedure where it amends primary legislation. What the Committee is not any clearer about is why it is necessary or appropriate for every delegated power in the bill to inherently permit the full range of ancillary power to be made standing that such provision could separately be made under section 66.

30. However, on considering the matter further the Committee observes that the power in section 67(1) does not specifically permit the modification of enactments in contrast to section 66(2). Therefore it considers that should the Ministers wish to make ancillary provision which modifies enactments then the power in section 66 will require to be used to do so unless the primary power specifically authorises such modifications. On this basis the Committee is content with the power in section 67(1).

Schedule 9, paragraph 3 – Power to prescribe appropriate proportion for crofting community right to buy relief
Power conferred on: The Scottish Ministers
Power exercisable by: Order
Parliamentary procedure: Negative procedure

Background

31. Schedule 9 sets out the relief available in relation to chargeable transactions entered into in pursuance of the crofting community right to buy. (The right exercisable by a crofting community body under part 3 of the Land Reform (Scotland) Act 2003.) This relief will reduce the tax payable by the “prescribed proportion”. The DPM explains that this approach is required because LBTT differs from SDLT in that it has progressive tax rates rather than “slabs”. In each case the relief will be calculated by applying the prescribed proportion to the amount of tax that otherwise would be chargeable.

Comment

32. The DPM explains that the negative procedure is considered appropriate for “a technical and administrative matter”. The Committee sought further information from the Scottish Government to explore why this power was considered to be administrative in nature.

33. The Scottish Government explains that it does not consider the exercise of the power would be controversial and that the purpose of the relief is to prevent the application of LBTT tax charges from acting as a barrier to the use of a Crofting Community’s right to buy. As a result of that right being exercised by a group of crofters the total tax bill might otherwise be higher than it would if the crofts were acquired individually. The Committee notes that more detailed provisions cannot be included in the bill at this stage since the appropriate percentage cannot be finalised until the tax bands and rates are set under section 24.

34. The Committee accepts that the power is appropriate in principle. The need to provide for the setting of the appropriate rate by order is an inevitable consequence of postponing the setting of tax bands and rates by delegated power. Nevertheless the Committee accepts that it would be sensible to provide a mechanism by which that percentage could be varied in the future. Following the explanation provided by the Scottish Government as to the purpose of the relief the Committee accepts that the negative procedure is a suitable level of scrutiny.

Schedule 11, Part 3, paragraph 6(3) – Power to prescribe proportion for acquisition relief
Power conferred on: The Scottish Ministers
Power exercisable by: Order
Parliamentary procedure: Negative procedure

Background

35. Schedule 11 sets out relief for certain transactions in connection with the reconstruction and acquisition of companies. The power in paragraph 6(3) enables Ministers to prescribe the proportion of relief in a similar manner to that set out ion paragraph 31 above. The reasons given for the power and the choice of negative procedure are the same as for that relief.

Comment

36. The Committee sought further information from the Scottish Government about the effect of the relief so as to assess whether this was properly a technical and administrative matter. The Scottish Government’s response has not assisted the Committee in this assessment. The response simply states that the Government does not consider the power to be controversial and that the power is necessary because the percentage must be set at the same time as the LBTT bands and rates are set.

37. As stated in paragraph 33 above, the Committee accepts the need for the power in principle given that the setting of tax bands and rates is postponed. However the Committee is not clear from the information provided whether setting the level of relief afforded in these particular circumstances might merit a higher level of scrutiny than the Scottish Government proposes. The Committee considers that the lead committee is best place to address this question through its scrutiny of the policy underlying this power. The Committee therefore suggests that the lead committee may wish to explore this issue further with the Scottish Government.

Schedule 16, paragraph 2 – Power to relieve certain land transactions involving public bodies
Power conferred on: The Scottish Ministers
Power exercisable by: Order
Parliamentary procedure: Negative procedure

38. Schedule 16 provides that certain transfers involving public bodies which are in the process of statutory reorganisation are exempt from charge. The power in paragraph 2 allows for land transactions involving public bodies to be exempt from charge. The DPM explains that the power is taken so that Ministers can “relieve additional types of transaction involving public bodies if it emerges that they are not relieved but ought to be”. The DPM considers that the negative procedure is appropriate for this as it is described as a “technical and administrative matter” and the power does not allow for the amendment of the Bill itself.

Comment

39. The Committee sought clarification as to why the Scottish Government considered this power to be a technical and administrative matter although the DPM suggested it could be used to specify additional types of exempt transaction. The Committee considers that provision of additional types of relief is an important matter of policy. The Committee also queried why these exemptions were to be set out in subordinate legislation unlike the other reliefs which are set out in the bill itself.

40. The Scottish Government has explained that in fact this power is intended to be used to exempt particular transactions involving public bodies which do not otherwise qualify for relief under the bill. It is not to create new exempt types of transaction. The power is intended to be a “safety net” to cope with individual circumstances rather than a means by which new reliefs can be created. The DPM is misleading in this respect.

41. Following this clarification the Committee accepts that it is more appropriate to include such exemptions in subordinate legislation. Given that the power is to be used to address individual transactions the Committee also accepts that the negative procedure is a suitable level of scrutiny.


ANNEX

Correspondence with the Scottish Government

On 29 January, the Subordinate Legislation Committee wrote to The Scottish Government as follows:

Land and Buildings Transaction Tax (Scotland) Bill at Stage 1

1. The Subordinate Legislation Committee considered the above Bill on Tuesday 29 January and seeks an explanation of the following matters:

Section 24(1) – Duty to specify tax bands and rates
Power conferred on: The Scottish Ministers
Power exercisable by: Order
Parliamentary procedure: Affirmative procedure for the first order, negative thereafter

1. Section 24 provides the mechanism by which the tax bands and the percentage tax rate for each band are set.

2. The power will set the tax bands and tax rates and there are no limits on how these may be set beyond the limited requirements set out in section 24 that these be progressive rates and there be at least two bands in addition to the nil rate band. The power has the potential to significantly affect the raising of revenue whenever exercised and not just on the first occasion.

3. The Committee has expressed concerns as to whether the negative procedure is an adequate level of parliamentary scrutiny over the exercise of the power subsequent to the first exercise of the power and asks the Scottish Government for further explanation of this matter.

Section 47(1) – Power to make regulations about residential property holding companies
Power conferred on: The Scottish Ministers
Power exercisable by: Regulations
Parliamentary procedure: Affirmative procedure (if amends an Act), otherwise negative

4. Section 47 confers power on the Scottish Ministers to provide for qualifying transfers of interests in residential property holdings companies to be treated as land transactions and to be chargeable transactions.

5. The Committee asks the Scottish Government:

  • When it intends to produce a draft of the proposed regulations?
  • Why, when it is clear from the Delegated Powers Memorandum that the power permits a wide range of approaches to the application of Land and Buildings Transaction Tax to residential property holdings companies, which can impact significantly on the operation of the tax regime, the affirmative procedure would not be a more appropriate level of scrutiny in all cases?
  • For an explanation of the circumstances in which it would be possible to make provision for the application of Land and Buildings Transaction Tax without making textual amendments to primary legislation and therefore without engaging the affirmative procedure?

Section 55(1) – Power to make regulations about the application of the Bill to leases
Power conferred on: The Scottish Ministers
Power exercisable by: Regulations
Parliamentary procedure: Affirmative procedure (if amends an Act), otherwise negative

6. Section 55 confers a duty on the Scottish Ministers to make regulations which provide for the application of this Act in relation to leases.

7. The Committee asks the Scottish Government

  • When it intends to produce a draft of the proposed regulations or publish proposed amendments to the Bill which would replace this power?
  • Why, when it is clear from the Delegated Powers Memorandum that the power concerns important issues of policy which are also of significance to consultees, the affirmative procedure would not be a more appropriate level of scrutiny in all cases?
  • For an explanation of the circumstances in which it would be possible to make provision for the application of Land and Buildings Transaction Tax to leases without making textual amendments to primary legislation and therefore without engaging the affirmative procedure?

Section 67(1) – Bolt on power to make ancillary provision

8. Section 67 (1) is parasitic on any other power conferred by the Bill and will therefore be subject to the procedure which applies to the primary power to which it attaches. It allows the exercise of the power in question to make different provision for different cases or descriptions of case or for different purposes. But more significantly it allows Ministers to make the full range of ancillary powers, including supplementary provision, when exercising any other power in the Bill.

9. The Committee asks the Scottish Government:

  • For justification of the need for ancillary powers to be available for all powers under the Bill given the stand alone provision in section 66 which could be combined with the primary power in any event?
  • Why the full range of ancillary powers in section 67(1)(b) is applied also to the power to commence the Bill given that section 69(2) separately allows that power to make transitional, transitory and savings provision?
  • If this is intended and, if so, why?

Schedule 9, paragraph 3 – Power to prescribe appropriate proportion for crofting community right to buy relief
Power conferred on: The Scottish Ministers
Power exercisable by: Order
Parliamentary procedure: Negative procedure

10. Schedule 9 sets out the relief available in relation to chargeable transactions entered into in pursuance of the crofting community right to buy. (The right exercisable by a crofting community body under part 3 of the Land Reform (Scotland) Act 2003.)

11. The Committee asks the Scottish Government:

  • To provide further information about the proposed use of the power in paragraph 3 of schedule 9, the effect this may have on the Land and Buildings Transaction Tax regime as a whole or on the market for the transactions concerned, and whether the power might be considered by consultees to be controversial depending on how it is exercised.

Schedule 11, Part 3, paragraph 6(3) – Power to prescribe proportion for acquisition relief
Power conferred on: The Scottish Ministers
Power exercisable by: Order
Parliamentary procedure: Negative procedure

12. Schedule 11 sets out relief for certain transactions in connection with the reconstruction and acquisition of companies. The power in paragraph 6(3) enables Ministers to prescribe the proportion of relief in a similar manner to that set out above in relation to crofting community right to buy relief.

13. The Committee asks the Scottish Government:

  • To provide further information about the proposed use of the power in paragraph 6(3) of schedule 11, the effect this may have on the Land and Buildings Transaction Tax regime as a whole or on the market for the transactions concerned, and whether the power might be considered by consultees to be controversial depending on how it is exercised.

Schedule 16, paragraph 2 – Power to relieve certain land transactions involving public bodies
Power conferred on: The Scottish Ministers
Power exercisable by: Order
Parliamentary procedure: Negative procedure

14. Schedule 16 provides that certain transfers involving public bodies which are in the process of statutory reorganisation are exempt from charge. The power in paragraph 2 allows for additional types of transaction involving public bodies to be exempt from charge.

15. The Committee asks the Scottish Government:

  • For explanation as to why this power would allow additional reliefs to be set out in subordinate legislation rather than amending schedule 16 directly so that all the reliefs are retained in the Act?
  • For explanation as to why, when the power permits the specification of new transactions which are to be exempt, this power is described as “technical and administrative” rather than concerning the issue of principle – when is a transaction to be liable to tax?

The Scottish Government responded as follows:
Section 24(1) – Duty to specify tax bands and rates
Power conferred on: The Scottish Ministers
Power exercisable by: Order
Parliamentary procedure: Affirmative procedure for the first order, negative thereafter

SLC question

The Committee has asked whether the negative procedure is an adequate level of

Parliamentary scrutiny over the exercise of the power to set rates and bands subsequent to the first exercise of the power.

Scottish Government response

As stated in the Delegated Powers Memorandum, affirmative procedure is considered appropriate for the first exercise of the power to specify tax bands and rates at the introduction of the tax. Thereafter, any changes to the tax bands or rates will be in response to market conditions and it is essential that the Scottish Government is in a position to respond hastily to provide certainty for the property market in Scotland. The Committee may wish to note that the power for setting non-domestic rates under section 7B of the Local Government (Scotland) Act 1975 is subject to negative procedure. Therefore, the Scottish Government remains of the view that negative procedure is the most appropriate level of Parliamentary scrutiny once the initial rates for Land and Buildings Transaction Tax (“LBTT”) have been set.

Section 47(1) – Power to make regulations about residential property holding companies
Power conferred on: The Scottish Ministers
Power exercisable by: Regulations
Parliamentary procedure: Affirmative procedure (if amends an Act), otherwise negative

SLC question

The Committee ask a number of questions in relation to this power. These are when the Scottish Government intends to produce a draft of the regulations, why the Scottish Government does not consider that affirmative procedure would be a more appropriate level of scrutiny in all cases, and finally, for an explanation of the circumstances in which it would be possible to make provision for the application of LBTT without making textual amendments to primary legislation and therefore without engaging the affirmative procedure.

Scottish Government response

The Scottish Government has included section 47 in the Bill as the use of “Residential Property Holding Companies” is viewed as an unacceptable tax avoidance. It is planned that amendments will be brought forward at stage 2 and that these are likely to lead to deletion or narrowing of the powers presently in the section. The Scottish Government considered that, given the form in which section 47 appeared at introduction of the Bill, negative procedure for regulations under it was appropriate to allow the Government to act speedily to tackle avoidance schemes in this area. However, we will consider what procedure is the most appropriate for any regulation making powers that remain once the Bill has been amended at stage 2.

Section 55(1) – Power to make regulations about the application of the Bill to leases
Power conferred on: The Scottish Ministers
Power exercisable by: Regulations
Parliamentary procedure: Affirmative procedure (if amends an Act), otherwise negative

SLC question

The Committee ask a number of questions regarding the application of the Bill to leases. They ask when the Scottish Government intends to produce a draft of the proposed regulations or publish proposed amendments to the Bill which would replace the power in the Bill, why affirmative procedure is not considered as a more appropriate level of scrutiny in all cases, and for an explanation of the circumstances in which it would be possible to make provision for the application of LBTT to leases without making textual amendments to primary legislation and therefore without engaging the affirmative procedure.

Scottish Government response

The Scottish Government intends to bring forward amendments to the Bill in respect of the application of LBTT to non-residential leases at stage 2. These may well lead to deletion of the regulation making power in section 55. We fully acknowledge the Committee’s view that the powers in section 55 concern important issues of policy and as such we have already given an undertaking to the Finance Committee to share proposed amendments with them at the earliest opportunity. [Non-residential leases are complex, and as such, the Scottish Government is of the position that any remaining regulation making powers may have to be invoked quickly, and therefore negative procedure is appropriate unless primary legislation needs to be altered.]

Section 67(1) – Bolt on power to make ancillary provision

SLC question

The Committee has asked the Scottish Government for its justification for the need for ancillary powers to be available for all powers under the Bill given the stand alone provision in section 66 which could be combined with the primary power in any event. The Committee has also asked why the full range of ancillary powers in section 67(1)(b) is applied also to the power to commence the Bill given that section 69(2) separately allows that power to make transitional, transitory and savings provision. The Committee asks the Scottish Government if this is intentional and if so why.

Scottish Government response

It is the position of the Scottish Government that the order making power in section 66 cannot be combined with the exercise of regulation making powers such as those in section 67 Therefore it is necessary for both to be included. There is a slight overlap between section 67(1) and section 66 in the case of order making powers,. However the tests for making ancillary provision under each power differ. Under section 67(1), ancillary provision can be made only when Scottish Ministers consider it necessary or expedient and the power is parasitic on the exercise of another power in the Bill. Section 66 is wider, and allows ancillary provision to be made for the purposes of, in consequence of, or giving full effect to, any provision made under the Bill. It is considered that both section 66 and section 67(1) are needed in order to give Scottish Ministers the flexibility to make the provision necessary for the operation of Land and Buildings Transaction Tax.

With regard to the Committee’s question as to why the full range of ancillary powers in section 67(1)(b) is applied to the power to commence the Bill given that section “69(2)” (we think that this should have been “69(3)”) separately allows that power to make transitional, transitory and savings provision, we would draw the Committee’s attention to section 67(5) which dissapplies section 67 to any order made under section 69(2).

Schedule 9, paragraph 3 – Power to prescribe appropriate proportion for crofting community right to buy relief.
Power conferred on: The Scottish Ministers
Power exercisable by: Order
Parliamentary procedure: Negative procedure

SLC Question

The Committee has asked the Scottish Government to provide further information about the proposed use of the power in paragraph 3 of schedule 9, the effect this may have on the LBTT regime as a whole or on the market for the transactions concerned, and whether the power might be considered by consultees to be controversial depending on how it is exercised.

Scottish Government response

The Scottish Government does not consider that the exercise of this power will be controversial to consultees. On the contrary, the rationale behind the relief is to remove an anomaly in the application of LBTT tax charges that could act as a barrier to the use of a Crofting Community’s right to buy. As this is a group right, there is only one transaction on behalf of a number of individuals, and this may result in the total consideration attracting a higher rate of LBTT than if the crofts were being acquired individually. Due to the progressive tax structure of LBTT, this order making power is included to allow Scottish Ministers to prescribe the proportion of the tax chargeable under LBTT when the rates and bands are being set so that crofters exercising their Right to Buy are not penalised by the higher rate that would apply to the should this relief not be in place.

Schedule 11, Part 3, paragraph 6(3) – Power to prescribe proportion for acquisition relief
Power conferred on: The Scottish Ministers
Power exercisable by: Order
Parliamentary procedure: Negative procedure

SLC Question

The Committee ask if the proposed use of the power in paragraph 6(3) of schedule 11, the effect this may have on the Land and Buildings transaction Tax regime as a whole or on the market for the transactions concerned, and whether the power might be considered by consultees to be controversial depending in how it is exercised.

Scottish Government response

As with the power contained in Schedule 9, Paragraph 3, the Scottish Government does not consider that the use of this power will be controversial. It is necessary for the proportion to be prescribed in an order at the same time Scottish Ministers set bands and rates for LBTT.

Schedule 16, paragraph 2 – Power to relieve certain land transactions involving public bodies
Power conferred on: The Scottish Ministers
Power exercisable by: Order
Parliamentary procedure: Negative procedure

SLC question

The Committee asks the Scottish Government for an explanation as to why this power would allow additional reliefs to be set out in subordinate legislation rather than amending schedule 16 directly so that all reliefs are retained in the Bill. The Committee also asks for an explanation as to why, when the power permits the specification of new transactions which are to be exempt, this power is described as “technical and administrative” rather than concerning the issue of principle, namely when is a transaction to be liable to tax.

Scottish Government response

The power does not permit the specification of new transaction types that are to be exempt as such. This power is for Scottish Ministers to relieve particular transactions involving public bodies if it emerges that the transaction is not relieved but ought to be. It is envisaged that the power will only be exercised in the instance of a land transaction which arises as a result of a reorganisation effected by or under an enactment. Such a reorganisation, as defined in paragraph 3, may involve a body that does not fall within the meaning of “public bodies” in paragraphs 4 and 5. Therefore, this power is included as a “safety net” to give Scottish Ministers flexibility to make provision to relieve a particular transaction if the scenario was to arise that a body involved does not fall within the definition. As circumstances giving rise to such a relief would be for one specific scenario as opposed to for a new type of transaction, it is not considered appropriate to amend primary legislation.


Footnotes:

1 The Land and Buildings Transaction Tax (Scotland) Bill is available here: http://www.scottish.parliament.uk/S4_Bills/Land%20and%20Buildings%20Transaction%20Tax%20Bill/b19s4-introd.pdf

2 The Land and Buildings Transaction Tax (Scotland) Bill Delegated Powers Memorandum is available here: http://www.scottish.parliament.uk/S4_Bills/LBBT_Final_DPM.pdf

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