Finance Bill 2016: Clause 82 Inheritance Tax - Increased Nil Rate Band (Downsizing) - CIOT comments

6 Jul 2017

The CIOT responded at the beginning of June to a Scottish Government consultation on a Scottish replacement to APD. This follows the inclusion of provision for the devolution of APD in the Scotland Act 2016. The policy proposals and discussion topics in the consultation paper were, in part, developed by the feedback obtained from the APD Stakeholder Forum, which the Scottish Government established in 2015 and of which the CIOT is a member. The CIOT also attended a meeting of the APD Stakeholder Forum at the end of May, to discuss the consultation document.

The Scottish Government has made it clear that a key factor in their decisions relating to APD will be whether or not there will be improvements in connectivity, although other factors such as how to replace the revenues lost will feature in the decision. Here it should be borne in mind that the tax raised over £300 million for Scotland in the last financial year. A further key issue will be support for the proposals since the current government no longer has a majority in the Scottish Parliament. There was an accompanying consultation on the Strategic Environment Assessment, to which CIOT did not respond.

In our response, we reiterate our support for the idea that there should be one overarching framework for all devolved taxes in Scotland, while noting that there is possibly a tension between this and the Scottish Government proposals, which might mean that the Scottish replacement for APD is a relatively short-lived tax, albeit that if the Government adheres to its target for reduction, the tax is likely to still be in place at least till the end of the current Parliament in May 2021. We voice our agreement with many of the administrative proposals, which essentially draw on the existing Revenue Scotland and Tax Powers Act 2014. Areas that we consider to be of particular concern or importance include the connecting flight rules and how these interact with the current UK rules, having a certain and sustainable structure and policy for the tax and doing more work to ensure all stakeholders are contacted and careful, independent research is carried out to ensure that the proposed policy will assist the Scottish Government in meeting its objectives.

We also sound a note of caution in our submission. If the replacement for APD improves Scotland‚ s air connectivity, although inbound tourism may well increase, another result is likely to be to increase outbound tourism, particularly since Scotland is a relatively wealthy country. Outbound tourism could have a number of impacts on taxation, for example possible loss of VAT receipts (which are to be shared with Scotland) because of Scottish tourist spending abroad. It may be that these are compensated in part by inbound tourism spending and by pre-travel spending by outgoing tourists.

We also note that it is not clear, due to conflicting reports and studies, how elastic supply and demand is between different airports and how much competition might exist. It is also unclear how much effect APD and its level affects passengers‚ choice of routes and airports. For some, if not most passengers, convenience and location of the airport will outweigh the benefit of a lower ticket price, particularly if in order to benefit from the lower air ticket price, they have to spend more time and money in order to reach the airport. This will also be the case for business travel where even the higher rate of APD may be less than the cost of a business traveller‚ s time to journey to an alternative airport.

It is anticipated that the Scottish Government will consider their proposals in the light of the responses they receive. The intention is to introduce a Bill before the Scottish Parliament for its consideration, to make provision for the devolution of APD in April 2018. The Scottish Government‚ s policy (as stated in the Programme for Government 2015-16) for APD includes a reduction of the burden in Scotland by 50% by the end of the current Parliament. There is also a plan to abolish the replacement tax completely when resources allow. The CIOT will continue to contribute to discussions, for example through the APD Stakeholder Forum, which will continue to meet.

Technical Team