Land and Buildings Transaction Tax - Additional Dwelling Supplement legislation changes: consultation

3 Specific Issues

3A: Timelines

Proposed Change

3.1 The Scottish Government intends to legislate to increase the various timelines in the ADS legislation from 18 months to 36 months. The effect of this will be that:

• The time available to purchase a new main residence after disposing of a previous main residence will increase from 18 to 36 months. This is relevant where, for example, two or more properties are held by the buyer at the effective date and the previous main residence was disposed of prior to that date.

In terms of determining whether a repayment of the ADS can be claimed:

• The time available for disposing of a previous main residence after purchasing a new main residence will increase from 18 to 36 months.
• The time period for considering whether a property was a buyer's only or main residence in the period prior to the purchase of a new main residence will increase from 18 to 36 months.

3.2 The Scottish Government considers that this increase:

• Takes account of local housing market variation, including in rural or remote areas of Scotland. The available data shows that regional housing markets can vary significantly, with some more reliably 'buoyant' than others.
• Will assist in cases where more time than 18 months is needed to dispose of the ownership of a previous main residence, or to purchase a new main residence after the sale of a previous main residence.
• Will assist taxpayers in "outlier" cases where purchase or disposal within the current 18 month periods does not occur for unexpected and sometimes personal reasons.

3.3 Although it is recognised that the extension to 36 months may still not be sufficient in all situations, the Scottish Government considers that this represents a balanced approach in the context of the responses submitted to the call for evidence. It takes account of the specifics of the housing market in Scotland and the fact that sales or purchases may be delayed for a range of reasons, whilst also providing certainty about tax revenues.

Details of the Proposed Amendment

3.4 Please see paragraphs 5 and 7(1)(a) of the draft Order set out in Annex A for the full text of the proposed amendment.

3.5 The Scottish Government intends to amend paragraphs 2(2)(a)-(b) and 8(1)(a) of Schedule 2A of the Land and Buildings Transaction Tax (Scotland) Act 2013 (the Act), substituting 36 months for 18 months where relevant.

Questions

Question 1: Do you think that the proposed amendments provide for the Scottish Government's intended change?

Question 2: If not, what amendments would you propose to the draft legislation and on what basis?

3B: Inherited Property

Proposed Change

3.6 The Scottish Government intends to legislate to amend existing provisions in respect of the treatment of inherited property for ADS consideration. The effect of these changes will be to:

• Remove from consideration properties inherited post conclusion of missives but prior to the effective date of the purchase of a new main residence.
• Clarify the point at which a share in inherited property is owned for the purposes of the ADS.

3.7 The Scottish Government considers that these changes:

• Will address a potential unfairness where a property is inherited unexpectedly post the conclusion of-missives but prior to the effective date of a transaction. Under existing provisions, this would potentially incur an ADS charge which had not been anticipated.
• Will clarify the precise time at which a property is treated as 'owned' for the purposes of ADS consideration.

Details of the Proposed Amendment

3.8 Please see paragraph 8 of the draft Order set out in Annex A for the full text of the proposed amendment.

3.9 The Scottish Government proposes to introduce new paragraph 9B to Schedule 2A of the LBTT Act to allow for relief from the ADS where a buyer inherits an ownership interest in a dwelling in the period after missives have been concluded for the purchase of a new main residence.

3.10 New paragraph 9B will also clarify that an inherited property will be treated as 'owned' for ADS purposes on the date on which a conveyance or transfer in their favour is granted by the executors of the deceased person.

Questions

Question 3: Do you think that the proposed amendments provide for the Scottish Government's intended change?

Question 4: If not, what amendments would you propose to the draft legislation and on what basis?

Question 5: Over and above existing legislative arrangements, are there any targeted anti-avoidance measures that the Scottish Government should consider in respect of this proposed amendment?

3C: Small Shares

Proposed Change

3.11 Current deeming rules on joint ownership mean that each person with a share in the property is treated as owning the whole of the inherited property, regardless of how small their individual share is. If the overall value of the property is £40,000 or more, then it will count as a dwelling owned by the individual for the purposes of the ADS, even if the individual share is worth less than £40,000.

3.12 The Scottish Government intends to legislate to provide that where individuals have an interest in a share of property, and that share has a value of less than £40,000, this will not be taken into account for the purposes of determining whether the Additional Dwelling Supplement is due.

3.13 This scenario may be relevant, for example, where a group of siblings inherit a share of a property from a parent. This would mean, for example, that if an individual inherited a 25% share of a property with a value of £100,000, this would no longer be considered as relevant. This change will provide alignment with the current position that a property with an overall value of below £40,000 is not considered for the purposes of the ADS.

3.14 While the proposal to exempt small shares was initially considered in the context of inherited property, the Scottish Government intends to apply this treatment to all 'small share' interests.

Details of the Proposed Amendment

3.15 Please see paragraph 9 of the draft Order set out in Annex A for the full text of the proposed amendment.

3.16 The Scottish Government proposes to legislate to amend paragraph 17(2) of Schedule 2A of the LBTT Act to provide that the rules set out in paragraph 17 regarding deemed ownership do not apply where the share of a property owned is below £40,000, even if the overall value of the property is greater than £40,000.

Questions

Question 6: Do you think that the proposed amendments provide for the Scottish Government's intended change?

Question 7: If not, what amendments would you propose to the draft legislation and on what basis?

Question 8: Over and above existing legislative arrangements, are there any targeted anti-avoidance measures that the Scottish Government should consider in in respect of this proposed amendment?

3D: Divorce or Separation

Proposed Change

3.17 The Scottish Government proposes to amend existing legislation to provide that an interest in a former previous main residence will not be counted for the purposes of the ADS where this is required to be retained by court order or other comparable legal document. Any other property owned will however be counted at the time that a new property is purchased.

3.18 The Scottish Government considers that the proposed amendment addresses the potential unfairness in scenarios where the ADS becomes payable and there is no mechanism under which it can be reclaimed due to a legal obligation.

Details of the Proposed Amendment

3.19 Please see paragraph 8 of the draft Order set out in Annex A for the full text of the proposed clause.

3.20 The Scottish Government proposes to introduce new paragraph 9C to Schedule 2A of the LBTT Act to provide for an exemption of a property interest from consideration when determining whether the ADS applies to a transaction when that interest is legally mandated.

Questions

Question 9: Do you think that the proposed amendments provide for the Scottish Government's intended change?

Question 10: If not, what amendments would you propose to the draft legislation and on what basis?

3E: Joint Buyers/Economic Unit Provisions

Proposed Changes

3.21 The Scottish Government intends to legislate to amend the legislative provisions in respect of joint buyers and economic units. The effect of this will be that:

• All parties to a joint purchase will be treated as meeting repayment conditions at paragraph 8(1)(a) and 8(1)(b) of Schedule 2A in scenarios where the main residence that brought the transaction within scope of the ADS is purchased jointly, only one buyer can dispose of the ownership of a previous main residence and the other buyer owns no other property. This will address the fairness concerns identified by stakeholders, whilst ensuring consistency with the treatment of individual buyers
• Disposals of a previous main residence in both the 36 months prior to and after the purchase of a new main residence will be considered when determining if the ADS is repayable.
• The disposal of a property in which a buyer is deemed to have an interest solely by virtue of the economic unit provisions will be treated as a disposal by the buyer when determining ADS liability.

3.22 The Scottish Government considers that this approach aligns:

• the treatment of joint buyers with that of individuals who buy a new main residence and dispose of a previous main residence, resulting in a repayment of the ADS. For clarity, where the second buyer, who does not own a previous main residence but does own other property, then a repayment will not be due.
• the treatment of joint buyers with that of individual buyers.
• the treatment of disposals with economic unit deeming provisions for purchase of a property by one party to the unit.

Details of the Proposed Amendments

3.23 The proposed amendments modify paragraphs 6 and 8 of Schedule 2A so that relief from the ADS is extended to transactions by joint buyers in the scenarios outlined above.

3.24 Please see paragraphs 6 and 7 of the draft Order set out in Annex A for the full text of the proposed clause.

Questions

Question 11: Do you think that the proposed amendments provide for the Scottish Government's intended changes?

Question 12: If not, what amendments would you propose to the draft legislation and on what basis?

3F: Local Authorities

Proposed Change

3.25 The Scottish Government intends to provide relief from LBTT and ADS for local authorities where a purchase is funded under Section 2 of the Housing (Scotland) Act 1988.

3.26 The Scottish Governments consider this proposal to be in line with wider Scottish Government housing policy to support the provision of affordable housing. In this respect, the proposal seeks to align broadly the tax treatment of local authorities with that of Registered Social Landlords under Schedule 6 of the LBTT Act.

3.27 The Scottish Government acknowledges that there is currently no legislative definition of affordable housing for LBTT purposes.

Details of the Proposed Amendment

3.28 The proposed amendment inserts new Schedule 6A providing relief for certain acquisitions by local authorities.

3.29 Please see Schedule 1 of the draft Order set out in Annex A for the full text of the proposed clause.

Questions

Question 13: Do you think that the proposed amendments provide for the Scottish Government's intended change?

Question 14: If not, what amendments would you propose to the draft legislation and on what basis?