 Good morning and a very warm welcome to the fourth meeting of the Finance Committee. Can I just double check everyone's switched their mobile phones off, at least put them into a mode that they can't be heard, that would be very grateful. Can we go straight to agenda item one? It's the only item in business on today's meeting and so to begin taking evidence on the first year of operation of the land and buildings transaction tax. We have two witnesses that we have with us today. We have Charlotte Barber, the director of taxation at the Institute of Chartered Accountants of Scotland and Isabel de Vernau, the convener of the Tax Law Sub-Committee of Law Society of Scotland. I wonder if either of you would like to make a quick opening statement, if you wish. Thank you for inviting us to give evidence. I suppose that as an overall opening statement, perhaps two points. I haven't had a great deal of feedback from canvassing members for views about LBTT, and that would lead me to think that everything is working the way it should in broad terms. I suppose that the other point that I ought to mention is that we tend to think of LBTT as a lawyery tax. So Isabel. Well, thanks very much for inviting us here to give evidence. I think that the impression of our members generally about the first year of LBTT is that it has worked well and we are very impressed by the huge efforts that have been made by Revenue Scotland and by the Scottish Government bill teams and so on to make it all work. So we think that so far things have gone well, but we need to make sure that they continue to go well in the future, and that is a good part of that. Thank you very much. The law society submission stated that LBTT was undoubtedly being beneficial for first time buyers, and overall LBTT revenues surpassed the forecast made in the draft budget 2015-16. Your move noted in December that property sales in Scotland for first time buyers and home buyers are increasing three times faster than the rest of the UK. Is it therefore fair to say that LBTT has successfully delivered its policy aims of supporting first time buyers for remaining revenue neutral despite the impact of forstalling and other external economic factors? I think that that appears anecdotally to be the evidence that we are getting from our members that it has helped first time buyers. The lower rates at the bottom end have definitely been beneficial. However, it is important to look at the whole picture and whether the rates at the higher end of the residential scale are advantageous in the long term is perhaps a different question. We do not have a lot of feedback on that, because our members are not key to buying and selling residential property. We, like the law society, have some anecdotal evidence of the upper end of the market being a bit sticky. Do we have any supplementaries on the general issues of where we are? Are there any general issues arising from the non-residential operation of LBTT so far? We think that generally the non-residential side of things has been working quite well. There are some areas where it still causes a bit of difficulty in some transactions like the lack of a general sub-stale relief. However, people are getting to grips with it. There did not seem to be any huge impact from the fact that the top rate of LBTT was slightly higher than STLT. People just took that on board quite happily. Of course now that position is reversed and STLT is higher. Some areas that do need to be looked at, we have mentioned in our submission, is opinions from Revenue Scotland. In the more complex areas, that is something that tax payers need to be able to get. I think that there have been some initial issues with that opinions service. We have had similar feedback. Thank you. You also mentioned in your submission potential areas for changing the legislation, which was obviously a slightly more technical aspect, but that is why we are here today. Is your opportunity to exemplify some of that, if you would take that opportunity and be most grateful? In relation to LBTT on commercial and going back to the sub-stales, there is a bit of the legislation that seems to have a very odd effect. A sub-stale is where A sells to B and B sells to C in both transactions complete at the same time. In STLT, the person in the middle does not have to pay. There is a general sub-stale relief. In LBTT, there is not. That is a policy aim that we respect. That is the policy aim to avoid avoidance, which is not very elegantly put, but that is the aim. There was no general sub-stale relief because of the avoidance concern. The legislation seems to say, though, that B in a sub-stale in Scotland has to pay LBTT when he enters into the onward sale contract and not when the two contracts complete. We think that is an area that does not make any sense and needs to be amended. It does not seem to be appropriate that someone should have to pay LBTT at that early stage. That also feeds into the sub-stale development relief. It makes it difficult to see how that works. There are some other areas with the additional dwelling supplement, where we think that some changes need to be made. For example, where you buy a mixture of residential and non-residential property, the way that the calculations work means that you end up paying a bit of additional dwelling supplement on the commercial property. That makes no sense at all. The additional dwelling supplement is supposed to be a supplement relating to residential property, so it should not really be being paid on the commercial part of a mixed purchase. We think that there are probably some tidying up areas that need to be addressed in other aspects of the additional dwelling supplement. For example, when people inherit property, it is not entirely clear at what stage that starts to count as being something that is when the person dies, when confirmations happened or when is it. There are quite a few areas like that. There is also the dreaded partnership legislation, which is appalling and needs to be at some stage fixed. For all of these reasons, we think that it would be a good idea if there was perhaps not an annual but perhaps a biannual tax bill or tax bill process in the Scottish Parliament so that there was the opportunity to make these changes without having to fight for legislative time. Because we are only at the beginning of the tax making process in Scotland, it is important that we try to get that type of arrangement into the parliamentary process. We would ask the finance committee to consider that. I know that there is a review group being set up to look at the whole budgetary process and so on. To some extent, making good tax legislation depends on having enough time to consider it. The timescale in which the additional dwelling supplement bill was introduced was very short. It is not really the right way to get good legislation. I think that there just wasn't time to address some of the points that needed to be addressed. I would echo the sentiments about wanting a kind of process where we could get things fixed, because we have mentioned a couple of smaller points—well, not small to the people concerned obviously—but technical points where we would like to discuss them and see whether they could be amended. It is not crystal clear to ask whether they are part of the, we do not want to avoidance agenda from the outset or whether, in fact, in terms of a kind of commercial proposition, you would like to have the legislation to work to enable corporate demurgers to work the way that they do south of the border, for instance. We raised the point that we raised it with Revenue Scotland. We discussed it with Scottish Government officials, too, but there is not a clear-cut, obvious process for it to come back in on a regular basis. I would completely support what I will say, as it would be helpful if there was some regular mechanism process by which things could be discussed fully so that people could decide what the purpose of them is and then fix them if they need to be fixed or annunciate the policy positions behind them. If you were getting the guidance that you might have expected from Revenue Scotland, in the same way that Shmarshsea provides some guidance, then some of that fix could go on intermediately rather than waiting for a two-year biannual process. It could, if it is not specifically in the legislation. If the legislation does not allow it, Revenue Scotland cannot allow it. I think that that is obviously the problem in relying on guidance. We do not want to be taxed by statute and untaxed by concession or guidance. It is much better if the legislation can actually say what the Government wants it to say. Inevitably, with complex legislation like this, there are going to be the unforeseen consequences that emerge later and do need to be changed. That happens often with tax legislation in the UK. It is no surprise that there are some areas that need to be looked at like that, but, as Charlotte said, if there was a more concrete process for getting those things into the mix, we think that that would be helpful. Mordo. Thank you, convener. Good morning. I should remind members of my registered interest in that I am a member of the Law Society of Scotland. I wanted to pursue a bit further this issue that you touched on briefly about the question of the impact on the property market and behavioural impacts as a result of the introduction of LBTT, particularly on the higher end of the market. This has brought home to me recently because we moved house in the summer and not only do I have to pay a large sum of LBTT to the Scottish Government, but, as part of that process, I came into contact with a large number of lawyers and estate agents, who, certainly in Perthshire, had a very similar story to tell, which was how sticky the market for larger properties was maybe over half a million pounds in that part of the world and how they felt some of that was down to the very high rates of LBTT that had been introduced from April last year. I noticed reading the written evidence that in the submissions from Homes for Scotland, Readers States and the Scottish Property Federation, they seemed to confirm that particular view. In the letter that the convener received from the Scottish Fiscal Commission on Monday, the Scottish Fiscal Commission said to the committee that its analysis suggests that the volume of transactions remains subdued for properties costing between £325,000 and £750,000. I am also aware that there is some research by Ritty and Company that has looked at the question of market impacts. I wanted to get your take on that. What do you think the impact has been particularly at the upper ends of the market? I think that we accept the point that, for the first time buyers, on the lower end of the market, the reduction in LBTT has been positive. What has been the impact on the market at the upper end? The Law Society does not have accurate figures for the number of properties that are being bought at different levels of the market. However, the anecdotal evidence seems to bear out the suggestion that, at the top end of the market, properties are not moving as easily as they were. The higher rates of LBTT probably could have something to do with that. It is quite interesting that the 10 per cent rate for LBTT kicks in much earlier than it does for SDLT, whereas property values in Scotland are probably lower than they are in London generally. It has been put to us that the stickiness in the upper end of the market is significant. Although you might say that, at that level, buying houses is a discretionary thing, people can decide to just not buy and stay in their existing house and extend it or whatever it is, it has a knock-on effect further down the market. For people at the lower end who need to buy a bigger house because they have had children and they have expanded out of their existing accommodation, as it were, if there is a stickiness at the top end, it flows down all the way through. There could be an inadvertent effect on people at the lower end of the market. Although it is difficult to tell a bit of a Brexit impact on houses at the top end of the market, perhaps there might be some merit in looking very carefully at the higher rates of LBTT to perhaps counteract that. In relation to all those discussions, one point that we would like to make is that if Revenue Scotland published monthly figures of LBTT that has been collected, it would be great if the information published by Revenue Scotland went even further and broke it down by what bands the LBTT could come from. When you ask a question like this, we could say that we know from the Revenue Scotland information that so many houses in this band have changed hands. That information is obviously available because it is a database. We are starting off on the tax trail here in Scotland. We could probably do a lot better than is the case in the rest of the UK, where to get any meaningful information about tax takes and how it breaks down, you need an FOI request almost. It does not need to be like that here. That could probably easily be done. Even breaking it down between the LBTT take on purchases and on leases, for example, would be quite significant. That was one of the areas that was quite difficult to get information about before the introduction of LBTT. We think that that would be terribly valuable to all manner of people looking at the impact of tax in Scotland. Icas does not collect any kind of statistics or feel for it. It is purely anecdotal evidence from some of our members. It probably reflects what Isabel says, but beyond that I have not got anything concrete to contribute. In terms of policy making on a broader pitch, it would be good to have more evidence and presumably we will build that up as years go by. I agree that if we could see the different rates that come in, that would be helpful. That is an interesting suggestion from the witnesses. Perhaps the committee could follow up on that. I wonder if I could ask a subsequent question to Isabel Dunverno. We know from the data that we have seen that the tax take from residential LBTT for the first year was £33 million below what was originally predicted. Some of that might be down to forestalling, although there might also be a forestalling effect at the end of the 2015-16 financial year because of the people trying to avoid additional dwelling supplement. Have you any view on whether the slowdown in the market that you talked about at the upper ends contributed to that reduction in the tax take beyond what was anticipated? It is probably the case that that did contribute to it, although we do not really have any specific evidence to that effect. If you crunch the numbers, it suggests that that must have been the case. It is very difficult to forecast tax takes in the property market because it is affected by so many different things, particularly the commercial property market. It is very difficult to forecast what will affect it. What seems to be being said around Scotland is that the higher rates are not necessarily helping the tax take. The aim should really be to increase the tax take, not the tax rate should be the general approach we feel in relation to tax. It has all sorts of effects. The higher the rates are, the more likely people are, dare I say it, to try and avoid paying them. There is that danger of having rates which are perceived to be too high. Back in the olden days, when stamp duty was only 1 per cent, nobody bothered to avoid it because it was not really worth it. When it started to creep up to 3 or 4 per cent, people did have it. I am not suggesting that anybody is trying to avoid LBTT, but there is that risk with rates that people perceive as being high. Is it your view that a reduction in the rates of LBTT at the top end might raise more revenue by stimulating the market? I am not an economist or I do not have a particular expertise in that area, nor does the law society, but it is something that people have suggested that it would help to unlock more transactions. It is also fair to say that the Royal Institute of Charter Surveyor said that, before any changes were made, we needed to get the research done, understand the dynamics around the bands and the thresholds. Would you agree with that position? Yes, absolutely. It is very difficult to unravel all the different factors that are at play in this first year, because, as has been mentioned, the force stalling and the ADS coming in, which meant that people were running around madly buying up properties before it came in. A lot of those things have a sort of interplay, but if there was more information for people, not just within Government but outside it, to look more carefully at these things, I think that that would be terribly helpful. That would be the best way forward. Murdo, you quite rightly responded to Isabel's issue about the breakdown for the residential elements in particular, where they come from. You look at the email that was sent to Ivan and copied to us all. I had just said to the clerks, as it was said to Isabel, that we have a breakdown of the numbers under the residential elements for the first four months of the year. We do not have that yet, so it is something that we should ask for. To go back to your point that was mentioned a moment ago, we have heard that there is more activity at the lower end of the market at the first-time buyer element. We have heard that there is a slowdown at the top end. We traditionally talk about the housing sector and how people move up over time. Are we in a situation where that traditional movement in property ownership could be distorted if there is activity at the bottom end but a lack of flexibility in the market at the top end? I think that that has been the suggestion that has been made to us that it may be more difficult for people to move up the housing ladder and that the middle ground is the difficult area because there are not so many properties becoming available because the upper-end ones are not moving. Is that something that is likely to become apparent in figures year on year over time rather than being clearly visible at the moment? I guess that if things stayed the same and the outturn was the same, that would give greater credence to the fact that that was what was happening. However, it is always complicated by other factors such as the ADS and the wider economics. Do you want to say a bit more about that? No, not really. I think that the wider economic circumstances will influence your overall property market as well and how much people want to move. I want to remind the committee of my register of interests. I have a property in Stirlingshire area that I rent out for £15,000 a year and I have 50 per cent share in a company that has a residential property in Edinburgh. I would like to follow up on the points that Murdo made. We are in the fortunate position where they have sent us some data, which you may or may not have seen. I just want to go through a couple of points to see if it chimed with what you were experiencing in the market. First of all, in terms of the top-end properties and million plus sales, if you look at that data, the total in 2013 was 115 of those properties and the total in 2014 is 139 of those properties. What we see moving on to 2015, which we expect is that the forestall in effect is in the first three months of that, there was 108, 14 and 90, so 112 properties. There was as much in those three months almost as there was in the previous whole year and then it dies off to practically zero through the summer. Interestingly, if you look at the last three months of that year, the annualise rate in the last quarter picks back up to 34 properties in the last three months, which is 136 annualised. It looks like that is exactly what you would have expected. There was a surge for the forestall and I dived to zero. Within nine months, it has recovered back to where it was prior to the forestall. Does that kind of chime with what you are seeing in the market? I would say that it does, yes. Moving on to looking at the overall tax take, which, as you rightly said, is the most important aspect of this, and you see a similar pattern. If you look through, and this is going back historically, looking at the stamp duty tax on property, 1213 was £283 million, increased substantially to £389 million in 1314, and then a large jump to £478 million in 1415, which, again, you would see the forestall and effect sucking deals into the larger part of that year, and then taking a dip in 1516 down to £416 million. We have recently got the data that takes us right up to July 2016, and if you look at that by quarter, what you see is that in that last quarter, April, May, June 2016, the run rate is back to what it was in 1415, and if you look at actually July 2016, it is a bit of a bumper month. It kind of looks again at what you have seen as a dip in terms of the tax take, but if you look at it across the whole piece, you are seeing the total tax take in the latter half of 1516, and certainly moving into 1617, is back to at least where it was before the tax changes. Again, does that chime with what you are seeing in the market? I think that that is probably the case. As I say, we do not collect the figures, unfortunately. I always think that it is better to go back to the data and then just talk about the anecdotes. I think that you are absolutely right. The data that I have been referring to is published, but have you folks had a chance to analyse that? No, not really. When you are asking the question. That is fine. That was the only point that I wanted to make. As I said, the data is early because we are only, with those four stolen effects, taking several months to play out and we are only 15 months into this, 16 months into it, we are not seeing the full effect on wine jet, but certainly from what I have seen, and I just wanted to check how it chime with you. It kind of looks like exactly what has happened, as you would have expected, and there does not seem to be any tail-off at all in the total tax revenue. What we will do is we will send you a copy of the data that we have, and if you want to reflect on that and come back to us, that would be helpful. Ivan, on the other hand. OK, I think that that took me then to Marie. Thanks for explaining that the new tax legislation is working reasonably well. I understand that, generally, when tax legislation is introduced, there is a process of refinement that happens afterwards, and I am really interested to hear in your ideas around making that a more concrete and systematic approach to refining the laws. I think that that would be a reasonable thing to do, particularly with the new legislative powers. I wondered which particular technical issues would the two of you suggest need to be refined with this law? We have mentioned the issues around the sub-sale, the section 14.1c timing point, that does seem to be something that needs to be changed. There are quite a number of other issues on the additional dwelling supplement, where it needs to be looked at, we think. Can you tell me, as somebody who represents a rural area with a lot of second home purchases, could you tell me a little bit more about what you would particularly see needs to be refined around that? There do seem to be quite a number of cases where people are paying the additional dwelling supplement, where they should not actually have to pay it. Before the ADS was introduced, we did try quite hard to get a grace period where the additional dwelling supplement would not be payable if somebody was replacing their home, but they actually decided to buy the new home before they sold the old one. The additional dwelling supplement, as you may know, applies where you own two houses. It is quite often the case in Scotland that people will buy the new house on a Friday and sell the old one on the Monday so that they can move in over the weekend or with a week's gap. In those circumstances, we did not think that it is fair for them to have to pay the additional dwelling supplement, although they could reclaim it once the other house was sold. We did argue for a grace period. There is a degree of a grace period because you do not have to pay the additional dwelling supplement if you have sold the old house by the time the LBT return goes in for the new house, if that makes sense. There is a degree of grace period, but we think that it should be probably longer than it is. It should be a question of months because it is very difficult to try to align those things sometimes. I think that that is an area that is being kept under review by the Scottish Government to see if there are situations where problems have arisen, but the trouble is that it is very difficult to prove a negative. People are not going to say that they are not necessarily going to raise the point that they were not able to do their transaction because of the ADS. We are not convinced that the ADS ought to kick in so violently at the bottom end because LBT was, when it was introduced, much more progressive than STLT and charging higher rates at the higher end, but the ADS is a slab, so it is a 3% regardless of the consideration. It means that there is ADS being paid on very low value properties and we are not convinced that that seems to make sense. It ought to be more progressive. The ADS ought to be more progressive if we are going to have an additional dwelling supplement. It ought to be as progressive as STLT is. Those are some of the examples, but we could send you a list of all the things that we think need to be addressed. Some of them are quite technical, but if that would be helpful, we would be happy to do that. Is there anything else that you want to go on at ADS? No, I do not think so. I thought that there was an 18-month period. It depends on which order you do things in. Both Ash and Neil had questions on ADS, but I was going to take Neil first. Neil, do you want to go? On ADS, we have received evidence from the Association of Local Authority Chief Housing Officers, raising concerns about registered social landlords being exempt from paying additional dwelling supplements, but local authorities are not being. We have also received evidence from North Lanarkshire Council, South Lanarkshire Council and Aberdeen Council with similar concerns about consideration that was needed to be given to that exemption being extended to local authorities. It is estimated that it costs councils around £2.5 million a year. I just wanted to get your thoughts on whether you thought one of the principles is having a fair and equitable tax to see if you thought it was worthy of consideration for local authorities to be exempt from the ADS. Yes, I think we do agree that there is some merit in an exemption for these sorts of transactions. Obviously, there is an exemption from the ADS for the purchase of six normal properties in a single transaction, so some of the activity by councils would be relieved by that, but we do think that when you look at the reasons councils are acquiring residential properties, we do not think that that is an area where they ought to be having to pay the ADS. So I think that we would support and we have supported these suggestions by the councils. We have nothing tied to that. We have also received concerns around the ADS about reluctant owners of second properties being penalised. I think that you have both touched on this in your evidence. Other people, such as the KPMG, have raised issues about that as well. I wonder whether you have talked about changes for grace periods and so on, but is there anything that can be done for people who have, through difficult situations, not been able to sell their second property and find themselves in a difficult situation? Is there any changes that you think can be made to the system? Well, our view on the ADS has always been that it shouldn't really apply if people are just replacing their main residence. In fact, it shouldn't apply to main residences at all. That would be a better way of approaching it. However, we can see that there are difficulties with policing that because people might just say, oh, this is going to be my main residence, and it would be difficult to make sure that that was actually the case in a sort of intentions-type test. But we think there is a case for widening out the various exemptions so that people who were only reluctantly or inadvertently owning two houses for a short period of time should not have to pay the tax. So I think we asked for a grace period of three months which would probably sort out a lot of things or perhaps even a discretionary grace period in some circumstances as well. But we think that that is an area where many people perceive it as being unfair. And it can actually be quite a difficult thing to come up with the money, apart from anything else. You know, it's a big extra chunk of money for a purchasist to have to find. So we do think that there are areas where there ought to be more relief. And we wonder whether some of these might have been able to be hammered out if there had been a longer time to introduce the ADS bill because it was brought in in a very short time scale. So there just wasn't enough time. Ash, I think that you have some questions around ADS. Mine's similar, but I suppose it's more on the clarity of the guidance. So I had a constituent that actually came to me on Saturday at a surgery and he was asking about this. So he was going to be a first-time buyer but his partner had a very small share of an inherited property with a number of siblings, so quite a small slice. Obviously that wasn't her main residence, she didn't live in that property. And he had approached, I think he was saying, a number of lawyers to get some sort of clarity on this issue and he said that they weren't able to advise him because they're saying it's quite new and they weren't quite sure how it applied to him. If we sort of sidestep whether that's in the spirit of the legislation as you sort of mentioned about the idea of it really should be applying to main residences. I'm just wondering is there a problem here about clarity about guidance and sort of clarity for taxpayers? And in the ICAS submission, it mentions that there's areas where the technical guidance doesn't give revenue Scotland's views on the interpretation of the legislation. So I'm just wondering if the clarity is there both for the practitioners and also for the taxpayers? Certainly in the ICAS submission, we had had feedback from some of our members about an example that was just exactly the same as your constituent and that's one of the areas where it's quite difficult to set the boundaries as to exactly what you do and how you police it and it's maybe something that deserves wider discussion. Again, as you mentioned, Isabel, one of the difficulties in having brought the ADS at speed is that some of these tricky points have not been fully ironed out. It would be nice to come back and re-look at some of them. And of course, I think the guidance is possibly relatively clear on some of those kind of areas. You know what we can't do. I know you can't do it. And it's maybe not just there. I think that where the guidance is missing more is on some of the kind of more, the larger detailed technical transactions, commercial property, those kind of areas. Isabel? The ADS guidance is quite long. It is quite good. But it's maybe perhaps not wholly accessible to everybody. Some of these questions that people come up with, they find it difficult to be satisfied by the guidance. So there's a sort of something missing there. I mean, the guidance needs to be perhaps expanded with more examples and so on. But sometimes there's no substitute to speaking to someone on the phone about it. And Revenue Scotland don't have a helpline as such. They have a support line. So I know that they have been answering questions to some extent on the ADS, but they're not really geared up to offering advice on the phone. I do wonder if this is the kind of area where that would actually be quite helpful. The other thing about the ADS is that people are both here and in the rest of the UK, in fact, individuals are trying to figure it out for themselves and are completely mystified by the complexities of it. So there's a degree of that. In the more complex transactions that Charlotte mentioned, there are probably advisers, either lawyers or accountants, who are being paid a reasonable amount of money on advising on the complexities of the tax. When it's somebody just buying a house, there isn't the scope for them to spend two and a half hours trying to figure out whether the ADS applies or not. So I think it behoves the tax authority and indeed the Government to provide, if they're going to impose a tax like this, to give sufficient guidance to individuals so that they can know if it's going to be payable or not. Okay, I'm moving into a slightly different area now. Adam, do you want to move to a slightly different area? Can I just ask a follow-up on this question? As you put it, Isabel, being taxed by a statute and untaxed by extra statutory concession, that's a model that has been used in the UK for quite a long time. It raises, as you know, a significant rule of law concerns. Is it a model that we should really be replicating in Scotland as we embark on a new model of fiscal devolution? Is it inevitable that we have at least a degree of tax by statute and tax concession by administrative discretion, or is it becoming a problem in Scotland? If you wanted to cover in the legislation every conceivable type of transaction and so on, the legislation would be extremely long. There are going to be areas where it's not 100% clear what the legislation says, and in those circumstances, we think it's appropriate for the tax authority to take a view about something and publish their view. For example, the meaning of substantial performance in LBTT and SDLT. You pay the tax if you purchase an interest in property or lease it, or if you have a contract that is substantially performed. Guidance was issued by HMRC very early on to say that they thought substantially performed meant paying 90% of the price or occupying 90% of the property, i.e. 90% was the area that would trigger it. Revenue Scotland have said that they don't necessarily agree with the 90% test, but haven't proposed a test of their own. We think that's an area where the legislation could say at length what substantial performance meant, but it doesn't say that. Therefore, it's a term that you can't look it up in a dictionary and say, oh, everyone agrees substantial performance means whatever. It is an area where the tax authority has to really express a view, we think, it's appropriate for the tax authority to express a view. That's not necessarily going the stage further and saying, well, it's completely obvious that the law says this, but we're going to interpret it like that. Although there is a place for that, if the government sees that the legislation works in a sort of capricious way, it might decide to do something about the legislation, but in the meantime say we're going to take the view that it doesn't mean that ridiculous interpretation. We're going to assume it means, so it's on a kind of temporary basis that it's going to be fixed by legislation. I mean, you're absolutely right that we don't want to be going down the lots of extra statutory concessions. We need to try and make sure that the law is right, but there are definitely areas where a view needs to be expressed. There's another one that we've been asking about, which is on pension mergers and so on, where if you transfer property as part of a pension's merger, HMRC have had a long-held view, which is expressed in the guidance that the requirement to make payments of pensions and so on is not consideration. So there's no SDLT payable. We've recently been asking Revenue Scotland, do you agree with that? Do you take the same view? It's not clear that they do. So maybe there's a degree of pragmatism in HMRC's approach to that, which might be helpful if it could be taken on board as well. I don't think that we're keen on there being a lot of extra statutory concession, but there are areas where it's helpful for the tax authority to express a view. I just wanted to tell our other witnesses. I would only add in broad terms, I think that LBTT is quite a difficult tax, because there are some really complicated areas in it, whether it's partnerships or trusts, or some of the commercial property, therefore it's quite difficult to pin everything down in the legislation. So there probably is a need for guidance. Guidance is an interesting word, isn't it? Because it depends on whether it's directed at Revenue Scotland at accountants' lawyers who probably know their way around it and know that it's really a Revenue Scotland opinion. Whereas if your constituents are looking at guidance, they maybe think it's gospel or the law, and it's not. I think that that can be quite tricky, knowing the status of guidance, there are lots of issues around legitimate expectation and so on. As a broad principle, we think that the legislation should speak for itself. We don't think that it should be such that you then have to explain it in guidance, but I will come back and support Isabel in terms of a difficult tax, a technical tax like LBTT. There are times when you do want to know how Revenue Scotland or HMRC will interpret it so that you know where you are. Thank you very much. I just broaden the perspective a little bit and think about fiscal devolution as it moves forward. Obviously, LBTT was very much in the vanguard of fiscal devolution in Scotland and thinking about institutional relationships in particular, such as relationships between institutions in Scotland and institutions in the UK, but also relationships within Scotland, relationships between Scottish Government and Revenue Scotland. What would you say are the key lessons to be learned as we develop fiscal devolution further in Scotland in the months and years ahead? That's an interesting one. I suppose you tend to look to the UK for that and kind of mirror HMT stroke, HMRC in the way one does policy and the other one does operational. I'm not completely convinced of it. I must admit that I didn't utterly put my brains in gear on that one before we came here, and I think that it's something that we might look at in your next inquiry. The Scottish approach to taxation is quite difficult to separate policy from operations because it's how you collect it and it's how it works operationally that influences the policy that we're now looking at. It's quite difficult to separate the two and to have formal separation is a bit artificial too. I think on the policy and administration, there is actually in UK taxation the fact that there's this policy partnership between HMT and HMRC and there's quite a lot of policy which HMRC do where it derives from operational issues. HMRC are probably more involved in policy than Revenue Scotland are. There seems to be more of a separation. I wonder, like Charlotte, whether that's necessarily a good thing because often the policy has to be informed by the operation of the tax. There's no point in introducing a tax that has been thought of just in the abstract and doesn't take into account the reality on the ground and how things work and whether it's going to be possible to operate it. I think that there's perhaps a case for Revenue Scotland being more involved in the development of policy. In terms of the relationship between the UK Government and the Scottish Government and obviously there were issues around the EDS when the UK Government brought it in and the Scottish Government responded quickly because it didn't want to see a disturbance in the market in Scotland. Can you talk us through a bit more about how important that relationship between the CHEM Treasury and the Scottish Government will be in future and what needs to be done to strengthen the flow of information and understanding of the impacts that one Government might do that will impact on another and vice versa? We'll see that really strongly when we get to the Scottish income tax. At the moment we've got the Scottish rate of income tax and that's one set rate and it's the same as the UK rate that it replaces. That's quite... Well, it's not quite academic but you know what I mean. It doesn't have a big influence but as of next year when there's the ability to set rates and bans then I think you'll see it really clearly the need to be able to pull together because you've got the levers over half of income tax, haven't you? Whereas Westminster will have the levers over the other half whether it's a personal allowance or reliefs or all those kinds of things and I imagine as devolution progresses and perhaps as you see more devolution in other northern powerhouses, Wales, Northern Ireland I think that'll help to bring it back to the centre that this is a process that is layered and needs to be managed so. We are quite concerned about the timetabling of tax changes which I think we've mentioned in our submission that the UK has the two big tax events of the year and the autumn statement and the budget and we are quite concerned about the way things worked out with LBT the first time round of rates being set up here big changes in Westminster which we understand the Scottish Government were not forewarned about in any way and we question whether that's the appropriate way to treat the devolved governments to have no sort of advance notice of any kind and so we had the rates the LBT rates being changed and this sort of towing and froing is not great for taxpayers taxpayers want certainty above all other things people said to us before LBT came in they didn't actually mind too much if the rate was more than 4% they just wanted to know what the rate was of a commercial property so we are quite concerned about the fact that we'll have the UK autumn statement on the 23rd of November and the Scottish budget I think it's being said three weeks after that and so there's that timetabling difficulty but also what Charlotte alludes to the setting of the rates of income tax up here how does that fit in with the UK budget it is a difficult and you don't want the UK rates set away down after the autumn statement heading towards April because employers will have to be able to work with everything and systems are going to have to be in place so you really want that brought forward that there's quite a bit of conflict there isn't there that will play into the budget review process that's on going and obviously it's something around you from the society and your concerns about intergovernment relations so that's where I'm trying to tease that out Willie, you had something round forecasting on that as well Thanks Bruce, just before that though I wonder if I could pick up something that Isabel said he said there's a Brexit impact here I think he mentioned it a couple of times Is it fair to say is that across all the bands or is it mostly at the higher end of the market and could you tell us a wee bit more about that please I think that it's very difficult to be certain what is going on but we are being it's being suggested to us that there is a bit of a Brexit impact on the higher end of the residential property market whether that's true or not is obviously very difficult to say and we certainly don't want to be trying to cause a Brexit impact by mentioning it it's really more the the bag on that one yes it's worth just bearing that in mind that if things can be done that counteract any such impact that would be I think that would be particularly helpful at this time The data we have here kind of shows that certainly in terms of the million plus properties that's kind of levelled back out again certainly at the tail end of 2015 so I don't have any data beyond that so if there's a Brexit impact that'll be taking us back in down into a trough of sales and that higher band perhaps are right across the past is there any data that would tell us what's happening? Not that we're aware of I think there are others who have better insight into these sort of matters like SPF and I think Retty's been mentioned and so on That leads me to the question that Charlotteman in your paper there you're saying that you don't have any evidence around trends generally and you would welcome or encourage an independent study into the impact that these changes would have could you tell us a wee bit more about what that study the scope of what that study should take into account and presumably it would take a Brexit impact into account as well I would think I think it's probably quite difficult to purely measure a Brexit impact it's all pervasive isn't it and it's quite difficult for people why they're not? To pick that one up but yes I think there's a mixture of things isn't there I mean we're one year in on LBTT so folk are still finding their feet and I think in the fullness of time to help inform your policy around LBTT and also other policies you know will council tax bandings going up will that have a knock-on effect to upper ends there's some work there for somebody to just because it's quite difficult to make it without having a feel for these things but I haven't got any immediate feedback on that it's just comments from members and I think you were saying earlier one of you said earlier that probably the worst thing to do would be to keep changing things at the moment while because there's no benchmark information or data for us to compare this with so it has to settle in for a period of time I think was a message that I got from you to even enable us to have some kind of reviewer analysis of how it's working over say the first five years or so of this As part of a broader piece what would a Scottish approach to taxation be like for instance we would like as much certainty as we can because as you said people want to know what the rate is and if it's different next year and different the following year and you have to jiggle when you're going to buy your house or do your transaction then that just leads itself to a level of uncertainty which might put folk off and say it's a feel for what's coming that's what's wanted and I don't think there needs to be changes in tax rates every year for instance If there are going to be changes in tax rates it would be good to know when they're going to happen it's going back to this timetabling thing that when we're advising clients with the UK tax system we will always be careful to say of the autumn statements coming up there could be a change in the autumn statement or similarly the budgets coming up but we don't have that particular knowledge I mean we kind of expect that if there were to be changes in the LBTT rates they'd be probably announced at the time the Scottish budget but it would be good to have a bit more certainty about when things were going to be announced although obviously the difficulty of interacting with Westminster has already been mentioned Okay, thank you James Isabel on a point in the law society submission you expressed concern about penalties for late returns or non-returns How much of an issue do you think that is and what would you see as an alternative in terms of penalties The LBTT penalties are more stringent than the STLT ones were so the penalties can quite quickly mount up and one area that is a concern is lease returns when they start to have to be made because for LBTT you have to make a return on a lease every three years so we think that's one area where people may not because they're not familiar with the system they may not make the returns and they may be suffering a penalty when there's no LBTT to actually be paid surely that there shouldn't be a penalty if there's no tax to be paid on the return because it seems sort of disproportionate we are aware of a number of cases where because somebody's been not necessarily a huge amount of time late but the penalties when you add them up are really quite crunchy so we wonder we think that should probably be looked at the sort of adding together late payment, late return penalties does seem to make them quite crunchy having said that we are very keen to ensure that LBTT is properly policed one of the problems with SDLT was that everyone was abusing the system and avoiding it because it wasn't being properly policed and we just don't want to have that or LBTT but perhaps the better way rather than imposing penalties when people get things wrong is to do inquiries to make sure people are doing things correctly and we wonder whether the number of inquiries that Revenue Scotland has done so far is enough really we think the inquiry regime needs to be ramped up and I believe Revenue Scotland do have plans to do that but we think it's terribly important that there is a robust inquiry regime to make sure I fear it's human nature that people think they can get away with blue murder then they will try but if they know that the tax authority is likely to with SDLT you got to a stage where the promoters of these schemes could say well has the Revenue enquired into any of them? No we've never had a problem with it we don't want that situation we want there to be inquiries so that the regime is monitored there were a few comments earlier about transactions at the lower end of the property market and I wanted to pick up on that and the situation for first time buyers struck me as a little bit difficult to see the case for LBTT having a profound effect for their situation given that far bigger factors are more likely to play a role can you get a mortgage what's the supply of the kind of homes that you would want to buy as a first property and the wider state of the economy in which we've seen house price inflation leading to far less affordability far to a far greater extent than some other European countries the Law Society's evidence says LBTT has undoubtedly been beneficial for first time buyers and it seems to me that in order to reach that conclusion you might not only need a bit more time than one year but also to be really definitive in separating out how much better off are they because they're not paying a tax but also what indirect effect has that new tax regime had on prices and then thirdly what's the wider context that sits in in terms of low and precarious wages property prices more generally not necessarily affected by this tax so can I ask how has this conclusion been reached that LBTT has undoubtedly been beneficial for first time buyers just about the fact that they're not paying a tax or is there an assessment about those wider factors There hasn't been an assessment by the Law Society certainly of those wider factors I think we're merely reporting the kinds of things our members are saying about their experience with their clients that the fact that the rates are lower has been welcomed and that it has made things easier for those sorts of individuals buying property but you're absolutely right that it may be a combination of other factors that has led to the increased activity but sometimes it is a perception thing that people perceive it to be a good thing so I just wonder if two reflections might cast some doubt on this claim that it's undoubtedly been beneficial a higher number of transactions doesn't necessarily mean a benefit to the people who've been participating in those transactions and secondly that someone might feel that they've got a benefit because the supermarket says 20% off this week but if they jacked up their prices 30% last week then they're not actually better off and there is a perception thing rather than a reality in terms of economic benefit it is difficult to tease these things apart and certainly some of the transactions that were being done by to let properties before the ADS was introduced properties were changing hands at very high prices indeed and in fact people would have been better off waiting until it had come in and paying a lower price on the ADS in some cases rather than trying to rush to forestall a factor of people following others and so on is difficult but nevertheless it does make things easier for people who are not necessarily finding it easy to get the money together to buy the house the fact that the tax isn't playable or is lower is an advantage and that's why we question whether the ADS 3% should kick in at these low levels You said earlier that you're not in a position to make any kind of assessment about the indirect impact the new tax framework may have had on prices but perhaps that's something we could pursue with a future panel Is there any other questions folks? Are there any other questions? We've asked quite a range of questions there in Charlotte and thank you for helping us if you'd like to say to us have you covered the ground that you would have expected to cover? We've covered the ground as far as I'm concerned on LBTT but Isabel and I had just been having a brief discussion before we came in and we'll both our institutions will be responding to your inquiry into the Scottish approach to taxation and we just wondered if you had any particular pointers what you're looking for on that What we'll make sure is that the clerks immediately after this session to flesh some of that stuff out Thank you very much Thank you very much for coming and giving us evidence today I think it's all we've got on the agenda today Next week we'll meet to consider the recent research Yes, there's research from the Fraser and Alland of Institute on the Scottish Budget and Public Finances which I read yesterday a fascinating document certainly gives us quite a few pointers for the future I'm looking forward to seeing you next week