The Finance Committee of the Scottish Parliament issued a call for evidence at the end of June 2016 to assist their inquiry into the operation of Land and Buildings Transaction Tax (LBTT) in its first full year (1 April 2015 to 31 March 2016). The inquiry also considered forecast tax revenues in comparison to actual outturn figures.
Stamp Duty Land Tax (SDLT) was devolved to the Scottish Parliament by the Scotland Act 2012. The resultant devolved tax is LBTT, which came into effect on 1 April 2015, when SDLT was switched off in relation to property transactions in Scotland. The call for evidence made no direct reference to the LBTT Additional Dwelling Supplement, which was introduced on 1 April 2016.
The inquiry asked questions concerning the impact of the rates and bands on the property market, the level of receipts in relation to the forecasts and the impact of forestalling and whether the tax is likely to make short-term only or long-term changes to the property market. The CIOT response focused on the other questions, which concerned the extent to which the rates and bands are consistent with some of the tax principles adopted by the Scottish Government, whether or not there should be any changes to the rates and bands and the performance of Revenue Scotland in administering and collecting the tax. The CIOT gathered views from members who encounter LBTT in order to inform its response.
The CIOT noted that the rates and bands in the first year of operation were fairly consistent with the principles of fairness, equity and ability to pay. This is in large part due to the decision when designing the LBTT not to adopt a slab system. This means that there are no ‘cliff edge’ effects when the consideration for a transaction moves into a higher band. The jump from a 5% rate to a 10% rate for residential transactions in respect of consideration exceeding £325,000 nevertheless means that the overall rates of LBTT are significantly higher for high-value transactions.
Although we do not generally comment on what the rates of tax should be, the submission responds to the question concerning whether or not there should be any changes to the rates and bands of LBTT in the draft budget for 2017-2018. In our view, the setting of tax rates and bands for LBTT (and whether there should be any changes) should flow from policy decisions as to the aims of the Scottish Government and Parliament for LBTT. There must also be an awareness of the likely direct and indirect impact of any changes – in terms of the effect on taxpayer behaviour and the impact on tax revenues.
We think that the Scottish Government should uprate the band thresholds periodically, to ensure that they remain appropriate and are in line with policy objectives. This will help to prevent or minimise fiscal drag and help to ensure the LBTT is aligned as far as possible with the principle of the burden being proportionate to the ability to pay. In contrast, however, we think it would be best to minimise changes to rates, to maximise certainty for taxpayers.
When looking at how Revenue Scotland has performed in administering and collecting the tax, we note that LBTT is self-assessed. Therefore, it is also important to consider how easy it is for taxpayers and their agents to deal with LBTT returns, calculate the LBTT liability and make payments. We note that for day-to-day conveyancing LBTT is generally viewed as simpler to deal with than Stamp Duty Land Tax. We also acknowledge the way in which Revenue Scotland seeks engagement with stakeholders.
The submission contains some suggestions for improvements by Revenue Scotland, noting that it is important that they have the resources to allow these, for example, a swifter turnaround for their opinions service and more dynamic guidance.