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Scotland Urged To Simplify Proposals For First-Time Buyers' Tax Relief

by Jason Gorringe,, London

30 March 2018

The Chartered Institute of Taxation has warned the Scottish Government that its plans for Land and Buildings Transaction Tax relief for first-time buyers could be complex and difficult to enforce.

Land and Buildings Transaction Tax (LBTT) replaced UK Stamp Duty Land Tax (SDLT) in Scotland from April 1, 2015, and is administered by Scotland's own tax agency, Revenue Scotland. LBTT is a tax applied to residential and commercial land and buildings transactions (including commercial purchases and commercial leases) where a chargeable interest is acquired.

Responding to a Scottish government consultation on tax relief for first-time buyers, CIOT drew attention to HM Revenue and Customs's earlier research which found that the UK Government's first-time buyers' stamp duty relief had been ineffective. It found a negligible effect on the number of house purchases and the measure only pushed up house prices.

CIOT has said the Scottish plan to help first-time homebuyers by giving them a relief on property tax could be complex and difficult to enforce under current proposals. The Scottish Government proposals would see first-time buyers purchasing a home in Scotland eligible for a tax break of up to GBP600 (USD850) if they are buying a property for use as their main residence and have never owned a residential property before.

CIOT said: "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." For instance, it added, "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 is fit for purpose.

In addition, CIOT 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 used, CIOT said.

Moira Kelly, Chair of the CIOT Scottish Technical Committee, commented: "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."

TAGS: tax | property tax | mining | interest | United Kingdom | legislation | stamp duty | Tax | Scotland

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