Land and Buildings Transaction Tax: First-Time Buyer Relief consultation analysis

3. Chapter One and Two Responses

Question 1: Do you agree with the Scottish Government's proposed four key criteria for the relief, as described above?

Respondents agreed with the necessity of imposing eligibility criteria. There was no consensus of disagreement with any one criteria.

More specifically, all respondents agreed that the relief should only be available to natural persons and that the relief should apply to a single dwelling, the definition of 'dwelling' to be taken from the existing LBTT legislation.

The most common concerns raised related to the proposed criteria that to be eligible, the buyer must: (i) never have had a 'major interest' in a dwelling in Scotland or an equivalent interest in a dwelling situated anywhere else in the world; and (ii) intend to occupy the dwelling as their main residence.

On the former, comments were made as to the operational difficulty of proving "equivalent interest" in property outside of Scotland and generally on the cost of policing the criteria. Some further comments on the prior ownership criteria are considered in relation to Question 4. The summary of responses to Question 7 also includes more detail on respondents' concerns about the proposed introduction of a new definition around "major interest in land".

With regard to the proposed main residence test, the Law Society of Scotland (hereafter Law Society) expressed a view that the relief could operate as intended without the requirement to prove intention, arguing that "Intention is subjective, and can change over time". In addition, both the Chartered Institute of Taxation (hereafter CIOT) and Institute of Chartered Accountants (hereafter ICAS) questioned the practicality of demonstrating intent, particularly in circumstances where buyers are legitimately precluded from immediately occupying the purchased dwelling. The Association of Tax Technicians (hereafter ATT) also suggested: "A standard period of, say, 12 months could be set, with Revenue Scotland having the discretion to make a further extension if, for example, renovations took longer".

Some respondents questioned whether "another use prior to occupation" could be acceptable in some circumstances. ATT commented: "Would another use prior to occupation by the owner ( e.g. letting if the property would otherwise be empty) preclude the relief? Some examples of judging intention could be drawn from Private Residence Relief cases for Capital Gains Tax."

With reference to the Scottish Government proposal that existing Revenue Scotland guidance on determining what is a main residence would be used for the relief, a number of responses indicated that this pertains to establishing what is a persons' main residence, rather than intention to occupy. As such, it would not be directly relevant to the proposed relief.

More broadly, general concerns were raised about the operational aspect of proving eligibility and the risk of fraudulent claims.

Question 2: Do you agree that, where there is more than one buyer, all buyers must meet the relevant criteria in order for the relief to be claimed?

There was broad agreement with the intention of reducing complexity and acknowledgement that requiring all buyers to meet the eligibility criteria would simplify the legislation.

However, concerns were raised about whether this creates unfairness. Some comments argue that, given couples are treated as one unit for the purposes of determining whether the LBTT Additional Dwelling Supplement should apply, one person meeting all criteria should be enough and would capture the largest number of potential first time buyers. ICAS commented "It seems inequitable to deny a first-time buyer relief simply because they are investing in a property with another who is not" while Propertymark added "Every penny is vital when buying a property and the relief if extended to couples in this situation would help contribute towards the deposit or moving costs."

Ernst and Young (hereafter EY) suggested that the Scottish Government might consider partial relief for circumstances where only one (or some) of the buyers meet all criteria, although acknowledged this would add complexity. In general, organisations and individuals called for very clear guidance to avoid confusion and reduce the risk of fraudulent behaviour. The Law Society also noted that a property might be purchased in one name and then transferred to joint ownership at a later date.

Finally, the Scottish Government was asked by one respondent to consider whether circumstances which necessitate the disposal of a previous property (family breakdown/ bankruptcy) by one person in a couple should preclude the relief being available. This is covered in more detail in the analysis of responses to Question 8.

Question 3: Do you agree with the Scottish Government's proposed approach with regard to gifts, inheritance and trusts?

There was broad support for the Scottish Government proposal, although there were some claims of unfairness on both sides of the issue regarding gifts, inheritance and trusts.

Some respondents felt that inheritance rules were too restrictive and would preclude individuals who otherwise met the criteria on the basis of a very small inheritance, or alternatively felt that absolutely any inherited interest should get no tax relief.

The Law Society commented: "While that is a matter of policy, it would simplify the new relief if current or previous ownership through gift or inheritance were not relevant." Conversely, one individual response stated: "This seems fair as an individual could potentially have a gain from selling the property they hold an interest in, which could be used to afford a new home."

Several respondents asked whether situations where property is inherited but cannot either be used as a main residence or sold would exclude individuals from the relief. ATT commented: "Disposal may be impossible due to legal constraints ( e.g. a sitting tenant) or inability of other family members to buy them out. Despite the property being unavailable to the individual, ownership would result in first-time buyer relief being denied."

Finally, some respondents noted that the draft Order did not fully address the proposals set out in the consultation document with regards to trusts. This and other technical comments are included in the analysis and responses to Question 7.

In general, whether they agreed or not with the proposals, respondents asked for clear guidance on the matter.

Question 4: Are there any other issues which need to be considered with regard to assessing prior ownership of a dwelling?

A few concerns were raised about the burden of proof and the additional operational complexity for Revenue Scotland that would arise when it comes to assessing an interest in property, especially where the records relate to international ownership.

An additional point was made about mitigating risk to solicitors, tax or property professionals where individuals might not be honest about prior ownership.

One individual response suggested including an expiry clause for prior ownership (for example 10 years) would assist people who may have endured financial hardship or bankruptcy.

Other suggestions here included adding eligibility criteria relating to income and widening the prior ownership definition.