I thank members of the Finance Committee and the Delegated Powers and Law Reform Committee for not only their scrutiny of the bill, but their willingness to work with the Government to enable the bill to progress expeditiously through the Parliament to achieve a 1 April 2016 commencement date.
I thank the organisations and individuals who provided written and oral evidence to the Finance Committee during the committee’s stage 1 scrutiny of the bill. I also appreciate the input from a range of stakeholders who met the bill team, often at short notice. That input has helped to shape the bill before the Parliament today. I am also grateful for the work that was undertaken by Revenue Scotland to ensure that, from an operational standpoint, it is ready to hit the ground running when the land and buildings transaction tax supplement comes into force.
The 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 bill provides that individuals or couples who concluded missives on their purchase before 28 January 2016 will not be subject to the supplement.
The United Kingdom Government announced in November last year that it intended to introduce a new stamp duty land tax higher rate on the purchase of additional residential properties in the UK, effective from 1 April 2016. As I said last December during my draft Scottish budget statement, following careful consideration of matters, I concluded that the absence of a similar land and buildings transaction tax supplement in Scotland could adversely impact on the opportunities for first time buyers to get a foot on the property ladder.
The issue that I have had to face with regard to this particular situation is the scenario of the UK Government acting in this fashion. Given the proper consideration that is available to this Parliament over taxation matters, the Scottish Government has to respond to ensure that its policy objectives can be protected in this legislative scenario.
I was concerned about the possibility that the opportunity for first-time buyers to get access to property in Scotland could be undermined if we did not have similar provision in place. I quite understand the point that Mr Chisholm is making, which is that the UK Government is free to change its mind on this question, and I accept that it might well do so. However, I have to act on the basis of the legislative scenario that I see opening up in front of me, and the need to protect the policy objectives of the Scottish Government, which have been supported by the way in which land and buildings transaction tax has been implemented, and the benefits that that has given in terms of strengthening the market for first-time buyers.
Without a land and buildings transaction tax supplement in Scotland, it could be more attractive to invest in additional residential properties in Scotland compared to the rest of the UK—particularly at the lower end of the market—making it more difficult for first-time buyers in Scotland to buy a property. That would be contrary to the Scottish Government’s policy of maximising opportunities for first-time buyers to buy their first home.
However, I appreciate that the private rented sector has a key role to play in providing good quality accommodation for those who live in rented accommodation. The Scottish Government has been supporting the purpose-built private rented sector since 2013, funding the study that led to the “Building the Rented Sector in Scotland” report and establishing 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.
I recognise the need to support home ownership and first-time buyers without discouraging significant and beneficial investment in residential property for rent. After reflecting on the stage 1 evidence, I was pleased to positively respond to the Finance Committee’s stage 1 report recommendation that provision should be made within the bill for a 100 per cent relief from the land and buildings transaction tax supplement for buyers purchasing six or more residential properties in one transaction. The Scottish Government lodged a stage 2 amendment to give effect to that decision.
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 posed by the lack of Scottish data on these types of transactions.
The cost of the relief from the supplement for buyers who purchase six or more residential properties in one transaction has not been factored into the aforementioned revenue estimate. As outlined in the supplementary financial memorandum, lodged with the Parliament on 3 March, the Scottish Government has estimated the cost of the relief to be in the region of £2 million in 2016-17 and annually thereafter.
There have been numerous calls for various reliefs from the land and buildings transaction tax supplement. I am firmly of the view that a period of time will be required to enable the supplement to become embedded and for sufficient financial and statistical data to be collected to enable informed policy decisions to be made in 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.
I turn to the subject of a grace period, which was discussed by the Finance Committee and earlier today during stage 3. The Scottish Government lodged a stage 2 amendment, agreed to by the Finance Committee, that allows for the possibility that a person could claim exemption from the supplement in their initial land and buildings transaction tax return. That may be possible where the sale of the previous main residence is completed before the land and buildings transaction tax return for the acquisition of the new main residence has to be submitted. In such circumstances, no supplement would need to be paid.
I acknowledge that that does not provide a solution for all instances where the purchase of a new dwelling takes place before the sale of an old one, because the purchaser will need to submit their tax return in order to register the title to the property. The approach that I have decided to take here is to ask Revenue Scotland to monitor the position from the land and buildings transaction tax supplement provisions coming into force until 30 October 2016. The data collected will enable The Scottish Government—
No. That is not the Government’s advice. The Government’s advice to solicitors is to comply with the legislation, as I would expect them to do. However, we will monitor the evidence as it emerges in the handing of this issue.
It is important that we review the impact of the land and buildings transaction tax supplement, and I am aware of a number of calls for an early review to be carried out. I certainly agree with the comments made by the Finance Committee in its stage 1 report that
“developing an understanding of the impact of the supplement will be complex and will take time”.
To ensure a meaningful and constructive review, I firmly believe that reviewing the impact of the supplement will require at least one complete year of data, given the seasonality in 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.
It seems like no time at all since we were having the stage 1 debate on the land and buildings transaction tax supplement, because, in fact, it was just two weeks ago. We have approached the bill literally at breakneck speed. I acknowledge the effort that that has been for the Cabinet Secretary for Finance, Constitution and Economy, his officials, the Finance Committee, the clerks and those who contributed to our deliberations by giving evidence. We have proceeded with a degree of haste that is not usual for bills in this Parliament.
I have said a couple of times before that we need to think carefully about our parliamentary process for scrutinising tax changes. I accept absolutely that there will be occasions when we need to act quickly to implement a new tax or vary a rate. We will want, as a matter of course, to avoid behavioural responses where people might seek to avoid any new or changed tax but, equally, we will want to ensure that we have time to consider any revised legislation and get that legislation right. No one in this chamber wants unintended consequences to arise from rushed legislation.
The speed has implications for stakeholders, too, as consultation will, by its very nature, need to be done entirely differently, never mind the scrutiny process of this Parliament. The Law Society of Scotland, KPMG and the Chartered Institute of Taxation all expressed concerns to the committee about the lack of consultation that was undertaken.
I know that the convener of the Finance Committee agrees, and that will undoubtedly feature in the committee’s legacy paper. I hope that the speed of acting initially is balanced by a greater degree of post-legislative scrutiny, so that we can at least fix those aspects of legislation that are not working as intended. However, that debate will be for another day—in another session.
Let me turn to the substance of the debate. The land and buildings transaction tax was levied for the first time last year. The bill to introduce a supplement that is before us today is in reaction to the decision by the Chancellor of the Exchequer to implement a 3 per cent stamp duty tax supplement, which he announced in his autumn statement. We are essentially copying a proposal from the UK Government in order to safeguard the housing market in Scotland. I think that we all get that.
However, the House of Commons Treasury Committee believes that the proposal from the chancellor, on which we have based ours, is flawed. That committee believes that it will have a negative effect on the buy-to-let market, which we consider to be important—as the Deputy First Minister said in his opening speech—and it believes that it will also have an impact on labour market mobility. Indeed, the committee thinks that the whole thing is unduly complex and that it will have unintended consequences, so it is pushing for a delay—a period of calm reflection. I am not sure how successful the Treasury Committee will be and how persuadable George Osborne is, but the cabinet secretary has made it clear to me previously that he will proceed regardless.
Irrespective of any delay, the cabinet secretary—or indeed his successor—needs to keep the legislation under close review. Let us not be slow to amend it if we feel that it is having a negative impact on areas of our housing market. There is considerable and increasing reliance on the private sector rental market. If the availability of properties diminishes, there will be a knock-on effect on the social rented sector, where the number of new housing developments has been in decline.
The cabinet secretary said that he would come back at stage 2 with areas for exemption, and he did that to an extent. However, I think there is a continuing concern about labour market mobility on two counts. First, any contraction in the private sector rental market has a consequence for people moving around the country for work. They will be unable to access the range of housing that is currently available. That is the concern. Secondly, it has an effect on economic migration, as incoming workers will be charged an additional 3 per cent if they retain their home abroad.
That might not affect that many people, but we do not want to send out a message that Scotland is a less desirable place to move to in order to do business. We need skills from outwith our borders, such as those of doctors, nurses and teachers. We need to be cautious that we do not do anything that puts them off. I ask the cabinet secretary or his successor to monitor the impact of the legislation on labour mobility.
Finally, let me consider the income that is likely to be generated. As I have said before, the amount that is generated by residential LBTT is much less than anticipated. The forecast for 2015-16 was £235 million, and we are likely to be some way short, despite £20 million coming from the Treasury for forestalling effects.
The forecast for the LBTT supplement is much less ambitious. From a yield of £45 million to £70 million, it has been reduced to between £17 million and £29 million. The cabinet secretary has touched on some of the reasons for that. It has undoubtedly benefited from a much more detailed assessment and an attempt to consider behavioural factors. However, it is still limited in the availability of data, a point that was made robustly by the Scottish Fiscal Commission. I ask the cabinet secretary what action is being taken to improve the data.
The cabinet secretary has indicated that the bill is about ensuring that the opportunities for first-time buyers to enter the housing market remain as strong as they possibly can. That is something that we can agree on. I hope, however, that he has not had a negative impact on the private buy-to-let market, which is an increasingly important element of the housing market in Scotland.
The Conservatives gave careful thought at all stages to whether to support the bill. There are strong arguments from across the sectors on its flaws and dangers, but on balance I take the view that the risk of inaction is marginally greater than the risk of action. On that basis, we supported the bill at stage 1 and we will support it at decision time.
Malcolm Chisholm raised a particularly interesting question, as he often does in these debates. He asked what would happen if the UK Government, for whatever reason, decided to delay the implementation of its similar tax through its bill. I have no inside information, but if there were a delay of any sort by the UK Government on its stamp duty supplement legislation, I would argue that we ought to delay the implementation of this bill in Scotland. The primary reason for the bill would be removed, at least temporarily, until such time as the stamp duty supplement was implemented south of the border. Such a delay is unlikely, but the Scottish Government ought to remain open to the possibility and if it happens it should act accordingly.
There are calls from any number of constituents and organisations who are looking for as much guidance and advice as possible from the Scottish Government directly and from Revenue Scotland. The supplement will go live in a couple of weeks, and huge numbers of people are wondering about the detail and about all except for the most basic scenarios. I urge the Government, once the bill has been passed, to publish as quickly as possible all guidance and extra regulations—everything that it possibly can to give the public and the public’s agents as much notice as possible of how things will work in practice.
Jackie Baillie pointed out some other arguments. If the bill affects the buy-to-let market too savagely, it could have an impact on the number of properties that are available to rent. We should be careful, as it may have a negative impact on people who do not want to purchase—particularly if it leads to an increase in rents.
The bill could have some impact on smaller house builders, who are more reliant on what is called selling “off plan” the houses and flats that they build; that is, selling the property in advance of it being built. It is very difficult and less likely—although not impossible—for a first-time buyer to purchase a property off plan, long before it is built. Such purchases are much more likely to be made by somebody who is involved in a buy to let. If the bill starts to damage smaller house builders, I hope that the Scottish Government will take careful recognition of what is going on and take action.
My biggest concern was outlined in the stage 1 debate, at stage 2 and when we discussed my amendment today. At this late stage, I still urge the Scottish Government to give careful consideration to a grace period. A host of organisations have argued for that, not least those that advised the cabinet secretary on this bill and on the Land and Buildings Transaction Tax (Scotland) Bill. This bill will create a genuine unfairness for those buying houses. None of us wants that to happen, but it is pretty obvious that it will happen in a huge number of cases. The cabinet secretary said that he was not closed minded about a grace period, but thus far he appears to have been. I urge him to keep his mind open and liaise closely with stakeholders, in particular the Law Society of Scotland and those who will have to implement the bill on the ground.
It is obvious to me that we will have to revisit the bill pretty quickly—certainly long before six months have passed, given the number of transactions that will be involved. I ask the cabinet secretary to say something further about that in his closing speech.
It is good to know that, unlike at stage 1, when I was the only speaker in the open debate, I will have some company this time around.
A group of schoolchildren came into the public gallery and had to sit through the discussion on the amendments. As we discussed the finer merits of technical amendments to a taxation policy, I contemplated what a fine job we were doing of teaching them that politics was not in any way dry, boring or dull. It is fair to say that at least Gavin Brown did his best to inject a bit of heat into the debate, although he was a little uncharitable in his description of how the Finance Committee approached the issue of a grace period, particularly at stage 2.
The Deputy First Minister stated—and Jackie Baillie agreed in her remarks just now—that a grace period was included at stage 2. The Finance Committee recommended only that there should be a grace period; it did not recommend a specific length of time. As Gavin Brown will recall, we had a long discussion about that issue in committee. It was felt that, on balance, it would be best for the committee to recommend a grace period and allow the Scottish Government to decide on the most appropriate length of time.
I ask Gavin Brown to give me one moment.
Gavin Brown is perfectly entitled to disagree with the length of time of the grace period and to advocate for the points that he wishes to make. However, he must accept, first, that the committee recommended merely a grace period; secondly, that the Deputy First Minister proposed a grace period that was voted on in committee and accepted; and thirdly, that there was no duress applied with regard to how the committee members voted. Committee members assessed the options that were in front of them and voted accordingly.
I will make a couple of observations. First, the Deputy First Minister has outlined that the amendment that he lodged at stage 2 dealt only with the first part of Gavin Brown’s two-pronged problem in that respect. The second problem that Gavin Brown highlighted, which relates to a situation in which the sale collapses because the buyer withdraws, would not be addressed by a 14-day grace period as proposed at stage 2. [Interruption.]
I hear Gavin Brown saying that he proposed a 60-day grace period at stage 2. At committee, we went through the reasons why that was inappropriate. Given the 30-day requirement for the submission of LBTT returns, a 60-day grace period would have raised significant issues. In particular, Gavin Brown’s amendment did not specify any particular sales that would be captured, so it would have covered all transactions and allowed anybody to delay their transaction by 60 days irrespective of whether a sale had been completed or whether they were selling in the first place. It would have given carte blanche for a 60-day grace period simply to apply to all sales, in the same way as the 14-day grace period that Gavin Brown proposed, which did not specify who would be captured by the provision.
Gavin Brown should draw comfort from the fact—and I think that he is supporting the bill at stage 3 for these reasons—that, first, as the Deputy First Minister has highlighted, there will be the possibility of repayment after an 18-month period if a transaction goes through, and secondly, data will be captured to inform the possible future use of order-making powers to make an amendment if that is necessary. On that basis, we should all be grateful that the bill will receive support at decision time.
The housing market is a key component of our economy and, as such, changes to it ought to be considered very carefully. According to Registers of Scotland, approximately 90,000 properties were submitted for registration in the past financial year. The Fraser of Allander institute warned last week that growth in Scotland is set to slow further. With that fragility in mind, I strongly urge the Deputy First Minister to reconsider the implementation of an explicit grace period for accidental home owners.
The Finance Committee recommended that the Scottish Fiscal Commission should provide commentary in November, after the six-month outturn data for the supplement are released. The committee received correspondence yesterday from Lady Susan Rice on behalf of the Scottish Fiscal Commission. She stated:
“As with the other devolved taxes, the SFC plans to analyse outturn data relative to the forecast. A complication when conducting such an exercise for the LBTT supplement using part-year outturn data is that there are no historical data with which to identify a typical seasonal pattern in tax receipts from the supplement.”
I welcome the Deputy First Minister’s comments today about reviewing the arrangements after 12 months to ensure that seasonality is picked up, but there is still the issue around how we then unpick people who are captured, given that there is no explicit grace period.
The letter continues:
“This makes it difficult to assess whether or not any discrepancy between forecast and outturn is due to an underlying forecast error or an unknown seasonal pattern in this sub-part of the market. Nevertheless, we shall attempt to shed as much light as possible on the operation of the supplement as the outturn data are released.”
Moreover, the Scottish Fiscal Commission states that uncertainty in assessing the impact of the tax stems from the lack of data for this small part of the housing market. The Scottish market is a small part of the housing market, as is buy-to-let and accidental second home owners. In addition, the Council of Mortgage Lenders stated in correspondence with me that it does not collect any data or have any information on the bridging finance market. Given the paucity of data and the fragility of the economy, an explicit grace period ought to have been implemented.
Finally, it is not explicit in the bill that registered social landlords and local authorities who purchase fewer than six properties would be exempt, so I urge that exemption. I support the supplement in the bill, but I am concerned about the rapid roll-out of the measure and any unintended consequences, specifically because of the lack of precision in the two points that I have highlighted today.
I will address some of the comments that have been made. There has been a debate about the supplement provision that the bill will enact. Gavin Brown characterised the situation correctly when he said that it is a matter of judgment. Everybody can see that there could be a risk to the Government’s objectives for the housing market in Scotland, and in particular to one of our key objectives in our approach to land and buildings transaction tax in the original legislation, which was to give first-time buyers better prospects of progressing on the property ladder. That objective could be undermined by the legislative changes that are being made south of the border and their implications for the property market in Scotland. The decision in principle is undoubtedly a decision that was made on balance, but I have been anxious to ensure that the Government’s policy objectives, which have been reinforced by the steps that we have taken on land and buildings transaction tax, are in no way jeopardised by that proposal from the UK Government.
Jackie Baillie’s comments were an explicit acknowledgement of one of the challenges that we now face in our parliamentary budgeting and financial processes. We need to respond at greater speed than our core longstanding budget process allows. That was a helpful recognition of the issues that arise out of the devolution of additional tax-raising powers to the Scottish Parliament and the need for tax decisions to be made, and an acknowledgement that tax decisions sometimes have to be taken within a smaller window than expenditure decisions, given that behavioural implications can arise.
We will not resolve those issues this afternoon. However, the discussions about the bill and the scrutiny that the Finance Committee has given to the measures in the fiscal framework and the Scottish Fiscal Commission Bill, to which we will come later in the week, as well the wider agenda around the budget process, are all live discussions that Parliament needs to reflect on. I am sure that the Finance Committee will reflect them in its legacy paper.
Today, I put on the record the Government’s willingness to engage constructively with Parliament on those discussions. We all need to understand the parameters and processes within which we are working, in what is now a different scenario from the one that was envisaged when some of the veterans of Parliament—I consider myself to be one of them—were involved in the production of the Public Finance and Accountability (Scotland) Act 2000.
The other major issue in the debate was that of the grace period. We touched on some of the detail of that in considering the stage 3 amendments and we discussed it at stage 2. Mr McDonald fairly characterised the Finance Committee’s recommendation—it argued for a grace period to be provided for in the legislation. I responded constructively to that at stage 2 and provided for a grace period that will not have the effect of undermining the central tenet of the land and buildings transaction tax legislation, which is that it is important that transactions are registered with Revenue Scotland. That should enable all the appropriate tax to be collected and should mean that there is no diminution of that important principle. I will continue to reflect on those issues as we see the implementation of the legislation and, if I consider that there is any requirement for the issue to be addressed, appropriate provisions will be drawn to Parliament’s attention.
I acknowledge that the bill has been taken through Parliament at some speed and I am grateful to everyone who has participated in that process to enable it to happen. I give the reassurance that the Government will reflect carefully on the implementation of the legislation to ensure that its central purpose is delivered as part of the process.