Press release: Current plans for LBTT relief complex and difficult to enforce warn tax professionals

A Scottish Government plan to help first-time homebuyers by giving them a relief on property tax could be complex and difficult to enforce under current proposals, tax professionals have warned.

The Chartered Institute of Taxation (CIOT) was responding to a Scottish Government consultation on the operation of its proposed Land and Buildings Transaction Tax (LBTT) relief for first-time buyers1.

Last November, the Institute questioned the effectiveness of the UK Government’s plans to introduce stamp duty relief for first-time buyers after a 2011 HMRC study had concluded that a similar temporary measure introduced by the previous Labour government in March 2010 had a negligible effect on the number of house purchases and was largely reflected in higher house prices2.

The Scottish Government proposals would see first-time buyers purchasing a home in Scotland eligible for a tax break of up to £600 if they are buying a property for use as their main residence and have never owned a residential property before3.

The CIOT has cautioned that the government’s proposals for determining whether a buyer plans to use their home as a main residence could be difficult to apply in practice due to the subjective nature of the test.

There are also likely to be practical difficulties in establishing whether a buyer has previously owned property, since the conditions include not only residential property in Scotland, but equivalent interests in the rest of the UK and abroad.

The Institute warned that it could be difficult for Revenue Scotland to obtain the required information because not all countries will have registers detailing ownership of residential properties, making it more difficult to identify an equivalent interest abroad.

The Institute noted that existing Revenue Scotland guidance on determining a person’s intent to use a property as their main residence – which the government has said will be used to determine eligibility for the relief – was simplistic and the consultation silent on whether this would be developed further to ensure it was fit for purpose.

The CIOT also said that plans to create a new definition of “major interest in land” for the purposes of determining whether someone had previously owned property, would create confusion and complexity because a similar description exists elsewhere in LBTT legislation covering the wider operation of the tax. Consideration should be given to whether this new definition is actually required or whether different terminology could be used4.

Moira Kelly, chair of the CIOT Scottish Technical Committee, said:

“We are concerned that the government’s plans to introduce an LBTT relief for first-time buyers will not only create extra layers of complexity and confusion, but may also prove very difficult to operate in their current form. This will be to the detriment of the people that the legislation is intended to support.

“Targeted reliefs such as this will almost always introduce extra layers of bureaucracy and complexity but when this happens, these should be proportionate and support the overall objective of the policy to deliver tax relief for first time buyers.

“To ensure that the objective can be reached, we think that further action will be needed beyond the measures contained in the consultation to ensure that homebuyers, their advisers and Revenue Scotland have the information that they need to determine a person’s eligibility for the relief and ensure they receive what they are entitled to”.

The Scottish Government’s proposals mirror a November 2017 announcement by UK Chancellor Philip Hammond to introduce stamp duty relief for first-time buyers in England, Wales and Northern Ireland on homes worth up to £300,000.

Notes for editors

  1. A copy of CIOT’s response can be found here
  2. See Government research casts doubt on effectiveness of stamp duty cut (CIOT press release, 22 November 2017). A copy of the report ‘HMRC: Evaluating the Impact of  Stamp Duty Land Tax  First Time Buyer’s Relief’ can be found here.
  3. The first-time buyers relief will have the effect of raising the zero rate threshold for LBTT from £145,000 to £175,000. As a result, eligible first-time buyers will only start to pay LBTT, at 2%, if the property they are purchasing costs over £175,000. This results in a maximum saving of £600 of LBTT.
  4. A review by the Office for Tax Simplification of definitions in UK tax legislation noted that the overuse of definitions or applying similar labels for different definitions were contributory factors towards increased complexity in the tax system. See Definitions in tax legislation and their contribution to complexity (Office of Tax Simplification)
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