Land and Buildings Transaction Tax (Amendment) (Scotland) Bill: Stage 3

– in the Scottish Parliament at on 8 March 2016.

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Photo of Tricia Marwick Tricia Marwick None

The next item of business is stage 3 of the Land and Buildings Transaction Tax (Amendment) (Scotland) Bill. In dealing with the amendments, members should have the bill as amended at stage 2—that is, SP Bill 85A—the marshalled list and the groupings. The division bell will sound and proceedings will be suspended for five minutes for the first division. The period of voting for the first division will be 30 seconds. Thereafter, I will allow a voting period of one minute for the first division after each debate. Members who wish to speak in the debate on any group of amendments should press their request-to-speak buttons as soon as possible after the group is called.

Members should now refer to the marshalled list of amendments.

Section 1—Land and buildings transaction tax: second homes etc

Group 1 is entitled “Replacement of only or main residence: transactions involving multiple dwellings”. Amendment 1, in the name of the Deputy First Minister, is grouped with amendments 2, 3, 4, 6, 12 and 15.

Photo of John Swinney John Swinney Scottish National Party

Group 1 is designed to deal with the situation in which a chargeable transaction involves the purchase of more than one dwelling, and one of those dwellings is a replacement main residence.

Amendment 3 seeks to ensure that, when a chargeable transaction involves both the replacement of a main residence and the purchase of other dwellings, the supplement will still be payable on the other dwellings that are purchased. Amendment 6 will ensure that, in that scenario, the supplement is payable on the proportion of the consideration that is, on a just and reasonable basis, apportioned to the dwellings that are purchased that are not the replacement main residence. Amendment 1 will ensure that it is the amount of consideration that is apportioned to those dwellings that is looked at in determining whether the £40,000 threshold is to be triggered. Amendment 4 will ensure that it is the apportioned consideration that is relevant to the £40,000 threshold in paragraph 3 cases.

Amendment 15 seeks to cross-reference the concept of “relevant consideration” in paragraph 15 of proposed new schedule 2A, which is on interpretation. The concept of “relevant consideration” includes cases in which the consideration is apportioned when a replacement main residence is purchased alongside other dwellings.

Amendment 12 relates to a situation in which the buyer of a new home still owns their existing one at the time of the purchase, but then within 18 months sells it and claims repayment of the supplement. In that situation, where more than one dwelling is bought as part of the transaction that involves the purchase of the new home, amendment 12 will ensure that the supplement is repaid only in so far as it relates to the purchase of the new home. Amendment 2 is consequential.

I move amendment 1.

Amendment 1 agreed to.

Photo of Elaine Smith Elaine Smith Labour

We now turn to group 2, which is entitled “Payment of additional amount: ‘grace period’”. Amendment 17, in the name of Gavin Brown, is the only amendment in the group.

Photo of Gavin Brown Gavin Brown Conservative

Amendment 17 aims to cure what I think is a serious flaw in the bill. A person who purchases a new main residence, regardless of size, but has not managed to complete the sale of their existing main residence, will have to pay the full tax up front. They will inadvertently become what has become known as an accidental second-home owner. That means that they had no desire to own a second home and were not planning to own one. For any number of reasons—for example, they were unable to get dates to line up, or the person purchasing the property suddenly had to pull out or to delay because their mortgage had not come through—anybody in a housing transaction could end up as an accidental second-home owner.

If the house that such a person purchased was valued at, say, £300,000, that would mean that they would have overnight to stump up £13,000. If the house was valued at £125,000, which is comfortably below and nowhere near the land and buildings transaction tax threshold, they would have to stump up £4,050. I ask simply this: where are people for whom £125,000 is the limit that they can get to purchase a house suddenly going to find £4,050?

The policy memorandum says very clearly that the intention is not to bring the group of people in question into the tax because it is aimed at genuine second-home owners, but that is exactly what would happen in practice, which would be very punitive on individuals or families, who would potentially be hit with bills for thousands of pounds at a time when they would be genuinely under pressure because their sale had fallen through and they were scrabbling around trying to work out to fund the purchase of a house. People would become ultra-cautious and would sell before they buy in order to make absolutely sure that they would not have to pay LBTT. That, of course, could lead to their having to rent in the interim period and store all their belongings and furniture, and to a host of other complications and bureaucracies. That could be pretty widespread: it is unlikely that there would be only a handful of cases each year. There could be a significant number, which would create an almighty bureaucracy and have a detrimental impact on the housing market.

Amendment 17 is formally supported by the Law Society of Scotland in the written submission that it sent round MSPs early today or late yesterday. The amendment was suggested by almost all those who gave evidence to the Finance Committee, and is supported by all members of that committee, who all agree with paragraph 79 of our report, which says:

The Committee recommends that the Bill is amended at Stage 2 to provide for a grace period.”

That did not happen at stage 2, but I want it to happen at stage 3.

I move amendment 17.

The Deputy Presiding Officer:

Two members have requested to speak. If their comments are brief, I will be able to call both. Malcolm Chisholm will be followed by Jackie Baillie.

Photo of Malcolm Chisholm Malcolm Chisholm Labour

I will be very brief. I am not now required for the open debate, which will be short.

I support the bill, but when I looked at its detail, it struck me as rather odd that a grace period was not being allowed—in particular, because that was recommended by the Finance Committee and because the cabinet secretary took up, I think, most of the committee’s recommendations. It certainly seems to be very unfair that people will have to stump up large sums just because the transaction of selling their house will not be complete until a few days later.

Obviously, I will listen very carefully and with interest to what the cabinet secretary will say, but having read previous speeches that he has made on the issue, I do not see why he has to wait for six months to see what happens. I think that we can all anticipate what is likely—Gavin Brown outlined it. The bill as it stands would be unfair to individuals and could have a negative and a detrimental effect on the housing market more generally.

Photo of Jackie Baillie Jackie Baillie Labour

I apologise for my late arrival. Topical questions finished earlier than I had anticipated.

I support Gavin Brown’s amendment 17. He is right to have pointed out that the issue was first raised in evidence to the Finance Committee by the Law Society of Scotland, and the committee agreed with it. There is genuine concern about the grace period because there are occasions when a purchaser has no intention of owning two properties simultaneously but—for whatever reason—the selling of one home while purchasing another is delayed.

We all accept the principle that there should be a grace period—the debate lies in whether sufficient time is being allowed. The cabinet secretary’s amendment at stage 2 was helpful but a bit tight, because it gives, in effect, a grace period of only three to six days. Gavin Brown’s proposal, which is for a period of 14 days, is the more sensible option. The Law Society believes that it is a better and more workable option: to be frank, we should take heed of that, given its experience in conveyancing. The proposal would avoid unintended consequences, which I know the cabinet secretary is keen to do, so I hope that he, too, will support amendment 17.

Photo of John Swinney John Swinney Scottish National Party

At stages 1 and 2, as colleagues have said, a major topic of debate was the question of a so-called grace period. That is relevant to cases in which the buyer has failed to sell their previous residence by the effective date of the new purchase.

A grace period would be a period following the effective date where the buyer could pay any ordinary amount of land and buildings transaction tax that was due, and obtain registration of title without paying the subsequent supplement at that point.

In considering Gavin Brown’s amendment 17, members should be aware that the bill has always provided that a person who sells their previous residence within 18 months of the effective date will be entitled to repayment of the supplement, together with interest.

In addition, I lodged an amendment at stage 2 to clarify that, where the previous residence can be sold before the land and buildings transaction tax return is sent in, no supplement will be payable. That will help where there is a short delay in completing the sale of the previous residence.

A scenario that has been put to the Scottish Government is where a couple buy on a Friday and sell on the Monday so that they can flit over the weekend. A couple in that situation would not pay the supplement as it is proposed in the bill.

I have also given Parliament a commitment that I will keep the matter under review, and ministers have the power under the bill to introduce an appropriate relief by order if it is considered necessary in the future.

Gavin Brown’s amendment 17 is the same as an amendment that he lodged at stage 2, except that instead of proposing a 60-day grace period, he now proposes a 14-day one. The objections that I outlined at stage 2 remain valid. The amendment does not make clear the administrative requirements for taxpayers, their agents or Revenue Scotland, and it would apply even where no attempt has been made to sell a previous residence. It seems that it would shift the tax point forward in all cases.

I wish to emphasise what all that could mean for the Scottish budget. Gavin Brown’s amendment 17 undermines the important feature of land and buildings transaction tax, that registration of title is permitted only when arrangements for the tax that is payable have been put in place. His amendment would allow registration of title to be obtained without payment of the supplement, which could burden Revenue Scotland with chasing sums with which buyers are reluctant to part. Those buyers will include buyers from outside Scotland—and, potentially, outside the United Kingdom—which will make it all the harder to secure payment.

I accept, as Gavin Brown argued at stage 2, that Scottish solicitors can be expected to help with informing their clients as to their legal duties, and with facilitating payments and paperwork, but I do not consider that to be complete protection for the Scottish budget because the ultimate decision on whether and when to pay the supplement would rest with the client.

Photo of Murdo Fraser Murdo Fraser Conservative

I draw members’ attention to my entry in the register of members’ interests as a member of the Law Society of Scotland.

I recall that, in my days in legal practice, situations often arose in which people had hoped to buy and sell on the same day or within a day or two but the purchaser of the property had difficulty in getting mortgage funds or there was an inadvertent delay. As Gavin Brown set out, people who are caught in such circumstances might face paying a hefty additional sum. Where does the Deputy First Minister think people will find that money?

Photo of John Swinney John Swinney Scottish National Party

Mr Fraser made my point in the example that he cited. He said that people might have a difficulty of a matter of a day or two.

Photo of John Swinney John Swinney Scottish National Party

The amendment that I lodged at stage 2 addressed that issue.

Jackie Baillie accepted that I was helpful at stage 2 in extending the period to create those circumstances. I am simply placing on record the practical issues that would arise from Mr Brown’s amendment, which would essentially shift forward the tax point in all cases. That would undermine the fundamental premise of land and buildings transaction tax legislation that Parliament has previously enacted.

I do not believe that it is desirable to make provision in the bill that may give rise to a bigger debtor list in Revenue Scotland at such an early stage in its operations.

In summary, I have not closed my mind entirely on the matter, but I cannot support an amendment the operation of which would be fundamentally unclear, and which would place an additional burden on Revenue Scotland and be liable to have negative implications for the Scottish budget. The statistics that Revenue Scotland collates will enable ministers and Parliament to determine the extent to which delayed sales are a significant issue. If they are, the remedy can be taken forward by ministers, given the powers that they have to introduce in the future an appropriate relief by order.

I invite Gavin Brown not to press amendment 17. Should he decide to press it, I urge members not to support it.

Photo of Gavin Brown Gavin Brown Conservative

John Swinney does not want to burden Revenue Scotland, but he is perfectly happy to burden potentially thousands of people who purchase houses in Scotland.

The original LBTT legislation and the Land and Buildings Transaction Tax (Amendment) (Scotland) Bill have relied heavily on input from the Law Society of Scotland, which makes it quite clear in its written evidence, its oral evidence and the submission that it provided in advance of today that a grace period ought to be included in the bill. It quite clearly supports amendment 17 and is not looking to undermine the fundamental premise of the land and buildings transaction tax.

Photo of Mark McDonald Mark McDonald Scottish National Party

Gavin Brown has cited two examples. The first involved somebody who requires a day or two after a sale, perhaps because of difficulties in getting the dates to match up. The Deputy First Minister has already indicated that his amendment at stage 2 addressed that.

The second example involved a sale falling through. Can Gavin Brown explain how, where a sale falls through, his 14-day grace period would be of assistance to people who will have to go through the sales process all over again?

Photo of Gavin Brown Gavin Brown Conservative

I had wished that the period could be far longer than 14 days, but it was pretty apparent at stage 2 that the Government would not support a longer period.

It may help if there is a day or two, but—this may be news to Mark McDonald—it is sometimes not possible to get things to line up in a day or two; sometimes it can take longer. If a sale falls through because a mortgage is not in place in time, that may well be cured within a week or 10 days or so. My amendment 17 would allow that to happen. I think that everyone who gave evidence to the Finance Committee said the same very clearly. I think that that is why Mark McDonald signed up to the committee’s report, which says:

The Committee recommends that the Bill is amended at Stage 2 to provide for a grace period.”

Nobody on the committee, including Mark McDonald, expressed any objection to that. The committee looked carefully at the evidence and very clearly formed that view. If members change their views under duress a week or two after they have been put forward, that is regrettable.

Photo of John Swinney John Swinney Scottish National Party

We are back to the same point that I raised with Mr Fraser. Mr Brown read out an extract from the Finance Committee’s report that argued for a grace period to be put in place at stage 2. That is precisely what the Government has done. Jackie Baillie said that a grace period was included at stage 2. It simply happens that it is not the grace period that Mr Brown thinks appropriate, but we have responded positively. Nobody was put under any duress to do that. Does Mr Brown accept that an amendment was lodged to address the Finance Committee’s recommendation and that that undermines the fundamental point that he is making?

Photo of Gavin Brown Gavin Brown Conservative

I am sure that Mr Swinney attempted to do that, but it is pretty clear to me, to a number of solicitors and to the Law Society of Scotland that the amendment was not sufficient. The Law Society said quite clearly in its report—which, I am sure, Mr Swinney has read—that it welcomes the amendment but it goes nowhere near far enough: the bill does not offer a sufficiently long grace period. The Law Society knows that, in practice, returns are submitted instantly and are not held back because it is not considered reasonable to ask solicitors to delay registration of title, which is the key to the ownership of property. If lawyers do not register title, there is a risk of exposure to inhibitions, for example, so the Law Society supports my amendment.

I am genuinely disappointed by the Deputy First Minister who has, when I have worked with him on a number of bills in the past, been open-minded. Here we have a bill that has been rushed through. There was no full consultation or impact assessment. The Finance Committee did its best. After all the evidence that we saw on that committee, we suggested—to a person—that there ought to be a grace period, because the provision is unfair and a huge number of transactions could be affected by it.

The Deputy First Minister may shake his head, but when the bill was drafted, that was an unforeseen consequence. It is now, obviously, a foreseen consequence. We can do something about it here today; we can prevent its happening instead of waiting to see what happens after six months, because we are pretty clear about what could happen.

I would like to hear the Deputy First Minister telling people who might be trapped in such a situation that he did not want to bring in a change because it might have put a bit of a burden on Revenue Scotland. That is very disappointing. I will press my amendment.

The Deputy Presiding Officer:

The question is, that amendment 17 be agreed to. Are we agreed?

Members: No.

Parliament is not agreed. This is the first division at this stage, so I suspend proceedings for five minutes.

14:31 Meeting suspended.

14:36 On resuming—

We move to the division on amendment 17. This is a 30-second division and members should cast their votes now.

There was a problem with voting consoles that were not working, so I will call the vote again. This is a 30-second division.

Division number 1 Land and Buildings Transaction Tax (Amendment) (Scotland) Bill: Stage 3

Aye: 44 MSPs

No: 66 MSPs

Aye: A-Z by last name

No: A-Z by last name

The Deputy Presiding Officer:

The result of the division is: For 44, Against 66, Abstentions 0.

Amendment 17 disagreed to.

Amendments 2 to 4 moved—[John Swinney]—and agreed to.

Group 3 is on trusts and liferents. Amendment 5, in the name of the Deputy First Minister, is grouped with amendments 7 to 11, 13 and 16.

Photo of John Swinney John Swinney Scottish National Party

The group of amendments makes small changes to the rules on the ownership of dwellings that are purchased by trustees. In certain circumstances, beneficiaries are treated as being the buyers or owners of dwellings that are purchased by trustees. Amendments 5 and 11 clarify that only the dwelling being purchased is relevant when considering the rules on beneficial ownership in a chargeable transaction.

Similarly, amendment 16 ensures that the dwelling being purchased is considered in the definition of a relevant interest in the interpretation paragraph. Amendment 9 recognises the fact that there can be more than one beneficiary with a relevant interest in a dwelling that is being purchased by trustee. Amendment 10 recognises that relevant interests may come into being after the date of a chargeable transaction. Amendment 13 ensures that, when a dwelling is deemed to be owned by a beneficiary, under certain trusts or by a liferenter in a proper liferent, what is relevant to the schedule is the dwelling’s market value rather than the market value of the ownership interest in that dwelling. Amendments 7 and 8 are consequential to amendments that were agreed to at stage 2.

I move amendment 5.

Amendment 5 agreed to.

Amendments 6 to 13 moved—[John Swinney]—and agreed to.

The Deputy Presiding Officer:

That brings us to group 4, which is on the power to modify part 2 of schedule 2A. Amendment 14, in the name of the Deputy First Minister, is the only amendment in the group.

Photo of John Swinney John Swinney Scottish National Party

In the previous groups, we saw technical scenarios that land and buildings transaction tax legislation needs to be capable of addressing. To ensure that appropriate adjustments can be made to the detailed rules for the land and buildings transaction tax supplement, the bill includes a balanced range of delegated powers, all of which are now subject to a form of affirmative procedure. Those delegated powers have all been influenced by existing delegated powers that are contained in the Land and Buildings Transaction Tax (Scotland) Act 2013.

The Delegated Powers and Law Reform Committee and the Finance Committee each scrutinised those powers. I welcome those committees’ support for the principle of ministers having appropriate powers to react to changing circumstances without the need for a further bill.

At stage 2, the committees supported a new power to allow ministers to amend part 4 of proposed schedule 2A to the 2013 act in relation to partnerships and trusts. As I said at stage 2, partnership and trust arrangements can be complex and give rise to some of the most difficult aspects of land and buildings transaction policy and practice. In the vast majority of cases, residential properties are bought and sold without the use of partnerships or trusts. On reflection, I consider it appropriate that the power that I described should allow for the amendment of part 2 of schedule 2A—as well as part 4—because part 2 now includes important provisions concerning trusts and partnerships.

Amendment 14 extends the delegated power in paragraph 14(3A)(a) accordingly. The intention to lodge the amendment was signalled in the Scottish Government’s supplementary delegated powers memorandum, which was posted on the Parliament’s website on 3 March.

I hope that I have the Parliament’s support for my proposed extension to the delegated powers, to ensure that the legislation for the land and buildings transaction tax supplement is flexible, proofed for future use and capable of reacting to any tax avoidance arrangements that may emerge.

I move amendment 14.

Amendment 14 agreed to.

Amendments 15 and 16 moved—[John Swinney]—and agreed to.

The Deputy Presiding Officer:

That ends the consideration of amendments.