 Good morning, and welcome to the 12th meeting in 2019 of the Finance and Constitution Committee. Good to see you all here. Our only item on the agenda this morning is to take evidence on this round table format on the additional dwelling supplement. I warmly welcome all of our witnesses to the meeting. This round table format is intended to create as much free flow of discussion as we can achieve, but if you want to contribute, try to catch my eye or the clerk's eye and we'll do our best to get you in at the right time. We're going to have this discussion based around four themes and a separate member will kick off the different themes to get us into the process now. Inevitably, we might be cutting across these themes as we go through the process and it might have to change the format as we go along. That's the nature of a free flowing discussion after all. To begin, we will consider the first theme on how ADS has been operating in practice, and I will ask James Kelly to start off that discussion. Thanks a lot, convener, and welcome everybody. Thanks for your attendance this morning. It's very helpful that we've got a wide-ranging panel. We've got representatives that are charging essentially of implementing the technical aspects of additional dwelling supplement, and others who represent individuals and groups who are at the sharp end of that operation. I've expressed strong views on its operation. Just to set the context for this morning's session and to get the discussion going, we're interested in people's views and experiences of how the implementation of additional dwelling supplement is actually operated in practice. Who would like to kick off for 10? Good morning, convener. I'm Elaine Lorimer, chief executive of Revenue Scotland, the tax authority charged with the operation and administration of LBTT and additional dwelling supplement. There's maybe one or two things that might be useful just to set the scene for the discussion. The first point that I'd like to make to the committee is that ADS is quite a different tax to LBTT, although they are both taxes on land transactions. What brings the complexity to additional dwelling supplement is that we need to look to the personal circumstances of the taxpayer as to whether they are entitled to the repayment of the tax or not. That brings considerable complexity in terms of the understanding by taxpayers of whether they have to comply with the payment or not. From an operational perspective, it meant that we then had to introduce significant new guidance on our website. Just to give you an example, we've got over 75 worked examples on our website in relation to additional dwelling supplement. That tries to be comprehensive, but it can't possibly cover a reset of circumstances. From an operational perspective, ADS accounts for around 24 per cent of the incoming calls to our support desk, mostly from taxpayers wanting to know whether the tax applies to them or not. In terms of the revenues that are generated, around 25 per cent of the transactions that come into us for ADS, the taxpayer is saying that they intend to reclaim. However, in practice, that is working out at around 15 per cent to 20 per cent, so there is a small percentage of people who initially think that they might be reclaiming and then they don't follow through on that. There could be any number of reasons as to why that might be the case. You will also see from the evidence that we have put forward to you that around 25 to 30 per cent of the revenues that we bring in from ADS are subsequently repaid. There is a time lag that is associated with that because taxpayers have 18 months to dispose of their dwelling to be entitled to the repayment and then they have five years to reclaim it. You will see from the table that we submitted as part of our evidence that that tries to show you that the committee has a time lag in terms of repayments. That is all that I was going to say by way of introduction. It is helpful to set up some of the context. I am sure that some people want to take the chance to do so. Isabel Dunbarneau lost site of Scotland tax committee. In relation to the introduction of ADS, as I am sure everybody knows, it had to be brought in in a very short timescale. As Elaine has explained, it is a very complicated tax. There have been quite a few things that have turned out to be not quite as perhaps people had intended. It sounds very easy to have a tax on second homes, but firstly that is not what it is. It is not always on second homes, sometimes it can be on your first home. The complexities for individuals are quite mind-boggling. We have had one change that everyone, I am sure, is aware of to fix an issue, which seemed to be extremely unfair, but there are a number of others. Even in that relief that was introduced and Murdo had a great deal of input in getting that through, it only addresses some of the difficult problems. It addresses couples living together where only one of them owns the house and buying a new one in joint names, which is great, but it does not address couples planning to get married and not living together before they get married. I am wanting to buy a house in joint names and selling a house that only one of them owns, or equally it does not address people living together but in the wrong house, as it were. They live together, but instead of living in the house that they are going to sell, they live in the other house. Those issues could not have been foreseen when the legislation was being drafted and now need to be fixed. There are other difficult areas such as divorcing couples, which we feel quite strongly about. Although the ADS legislation does not treat them as a unit any more, in general, people who are married or in a long-term relationship tend to own property in joint names. That joint name continues, so they get clobbered for ADS if one of them departs and has to buy a new residence. All of those things are areas that probably need to be addressed to make it fairer and that were not able to be addressed in the short time scale when the relief was coming in. We think that there are quite a lot of areas that need to be changed to make it operate as the Government probably intended. Can I ask a question on that now? The Law Society submitted a very useful paper that outlined a number of areas. It was very helpful in that regard. There are quite a number of areas that you have outlined. It began to raise the question in my head that every time you try to change tax legislation, it can create loopholes for other people to be involved if they are not very careful in how it is drafted. The amount of effort that has been put in to change that legislation for the small amount of people who are affected is really an efficient way to go about it in terms of dealing with the specifics on ADS. It is a question that I have in my head and it might be that we have to do those sort of things, but is it the right way to be approaching it? I think that our response to that would be that the way that we fixed the first problem did involve a great deal of effort and it involved a sort of one-trick pony type of ADS bill, but that is not the best way of dealing with it. The better way of dealing with it might be to collect these points together and have a mechanism for dealing with them perhaps on an annual basis through a finance bill type of arrangement, which would have involved a lot less effort per change, as it were. When we heard that there was to be an ADS bill, we were delighted and thought, oh well, we can add all of these things in, but in fact it had a very narrow scope, so that is not really the best way of dealing with it, but it is perhaps all about collecting the right amount of tax, rather than being put off by the difficulties of changing the legislation. It does not seem right for the tax system to be discriminating against couples who are separating, it is difficult enough anyway, and most of the time the tax legislation tries to be helpful. It is kind of a deserving case, but not if we have to go through the process of having another act. I do not know how many points we have mentioned, but if we were to do it on the same basis as up to now, that is about eight ADS acts, which is not ideal. Charlotte Barber Institute of Chartered Accountants of Scotland and Directive Tax. Your question about boundaries is interesting because wherever you have a tax, you are always going to have boundaries. One of the difficulties with ADS is what Elaine was talking about. You have two types of boundaries. One, you have a tax on transactions, and then you have a tax on people's circumstances, and those two do not fit easily, and they are never going to fit easily, and you are always going to have boundary issues, no matter what you do. Where I think ICAS might come from is that now that we have devolved taxes in place and they have been up and running for a number of years, we are very supportive of the projects on hand at the moment, to look at maybe bringing more process in, so that there is better policy consideration as to exactly what you want to tax, and then there is better consultation around the draft legislation so that it actually does what you want it to do, and thereafter some kind of regular process to bring those points up. Tax is living, it is always changing. We will be here always. I guess that the point there is that there is a trade-off between the drafting of tax legislation and anticipating any anomalies that might arise, and in those circumstances it is going to be impossible to do it, and perhaps some of the mechanisms that you described might be one way to do it. Obviously, from our perspective as the tax authority, how you then operationalise that also needs to be taken into account. We would want for it to be efficient in the way in which we are able to collect it. Also, from our experience, being able to have such clearly defined legislation that it purely captures the issues of policy that are at play is an incredibly difficult task. One of the reasons for trying to make those changes that we have suggested is that it might do away with some of the phone calls to Elaine's people trying to say, why on earth surely it can't apply to me if the legislation is fixed so that in those cases where it seems absolutely counterintuitive and daft, that is the benefit of it on the operational front. David Millhurish, Scottish Property Federation. Just a couple of points to support the views that have been expressed and the question. In the question that I will just be out there, if the taxes, I think that we had estimated about 25 per cent on an annual tax year basis being repaid, if it is a bit more than that, 25 to 30 per cent, my question is, is that there for an efficient tax if you are having that amount of repayment over a period of time? The points that were made, I think that we would support the notion that some sort of annual finance bill is going to be necessary because the fact is that society and personal circumstances change and I think that the Law Society's paper also made the point that people perhaps unsuspectingly were eligible for ADS if they happened to inherit a share of a tax and in an era where the older generations are going to be hopefully devolving down properties to the next generations, which perhaps haven't yet got onto the property ladder, then that might become a more complicated situation as we go forward. I think that an annual finance bill is going to be needed to address those issues as they become more commonplace, as well as the demographics that we have of Granny Flats and so on that was also mentioned in the Law Society's paper as well. I don't think that any of that was envisaged in the sort of six-week process that we had to introduce this act in the first place. Although it was a six-week process, it did go through the normal legislative cycle of the Parliament. Obviously, it was a reaction to what was happening with what the UK Government had done in terms of its positioning, so Scotland did to react to that. Thank you, convener. Before I ask you my question, I should remind colleagues of my register of interests in relation to my personal property interests and also I am a member of the Law Society of Scotland. I just wanted to follow up this point about the unintended consequences that Isabel Dunverno referred to in the various examples that have been worked out and we have had individuals approach the committee to highlight some of those concerns, particularly the issue where two people who are not currently living together, one has property and one doesn't, who then buy a joint property and cannot reclaim the DS and it seems that it doesn't comply at least with the spirit of the legislation. However, the question that I really wanted to ask Elaine was how many people get caught out by this, not who expect that they will be able to reclaim the DS and then find themselves in a situation where they have taken a decision to buy a property and then suddenly realise too late that they cannot reclaim it or do you think that everybody is sufficiently forearmed in advance of that? There is quite a group of people, and we have at least one example of that, who are inadvertently finding themselves caught by this tax because they are not sufficiently aware of the consequences of their actions. I think that that is quite a serious issue. I do not have that statistic in front of me and I am not sure that we would have that information. Obviously, that comes down to taxpayers being aware of the application of the legislation to their particular transaction. The actions that we have taken in relation to that have been really close working with the Law Society, ICAS and professional advisers, with the information that we have on our website, with our 70-odd worked examples. I do not know whether people are being caught out in the way that you are describing, where they are finding that they have to pay the ADS when they did not think. I am sorry, I cannot give you that information. I do not have either Charlotte or Isabel. The only other thought that I have is that, as I said at the very beginning, we know that there is a small percentage of people who tick the box to say that they wish to reclaim, and then they do not end up reclaiming. We do not know the reasons for that. We think that some of that might be to do with the compliance work that we have done, but it may also be that some of that percentage are people who recognise that ADS applies, think that they might be able to reclaim it, and then they are finding out that they are not able to. That is completely anecdotal, but one of the things that I find quite interesting amongst our membership is that traditionally, accountants would have left SDLT to lawyers as a property tax, but when I am out and about these days, I find that not all by any manner of means, but certainly more than I would expect of our members are being advised about LBTT, not necessarily ADS, but LBTT is considered to be quite expensive, and it is also considered to be a bit of a risk, and compliance needs to be checked. It maybe needs more than just convencing lawyers. I would echo that. For a convencing solicitor who is being paid to buy or sell a house, having to deal with the complexities of ADS is quite a heavy burden. Obviously, large firms have tax departments, but smaller firms do not have that luxury, so some solicitors are saying, sorry, this is too difficult and too risky for us, you will need to ask for your accountant. That in a way is a bit of a sorry state of affairs if you cannot buy a house without asking an accountant about how much you have to pay with all due respect to accountants. It means that the normal member of the public cannot look at the 75 examples on Revenue Scotland's website and think, haha, I know exactly what the position is. So lots of them phone up and say, well, you know, what's the story for me? But I think anecdotally, our members certainly have many, many examples of people assuming that they won't have to pay ADS. But in fact, it turns out, when you look at the facts that they do, many firms have a questionnaire that they give to clients to establish the facts that might lead to whether the ADS is payable or not. In terms of trying to make this tax operate better, what we need to do, if we can, is look at those areas where people, tax payers, say, you have to be joking, surely that doesn't apply in my circumstances, and see if those could be fixed, like the people not living together. Surely the Scottish Parliament doesn't mean that I have to live with my whoever before I get married in order to be able to not pay the ADS. Surely that cannot be the case, or why does it matter which house we live in? You know, we're a couple, we're selling one, buying another, why should that matter? Jo, did I catch your eye there? Yes. Jo Joyce, I'm here on behalf of SEOT, but I'm a senior member in KPMG's stamp taxes team, and I just wanted to echo really what Isabelle and Charlotte have said. Prior to the introduction of the ADS, we didn't really see a lot of queries coming through on straightforward residential purchases, and now say I get probably about 25 per cent of the queries I get, it's around people buying houses, or particularly buying with their children, or with their parents, the issues around divorce, and couples who aren't married again, or aren't living together beforehand. Historically, these had generally been dealt with by conveyancing solicitors, because your personal circumstances weren't really that relevant. It is putting a lot more burden on the taxpayers and the conveyancing profession to try to get to the bottom of what tax people should be paying. People do want to be paying the right amount of tax, but sometimes they don't know what that is. As Isabelle said, fixing some of those problems will really help, because a lot of the time you look at what the legislation was meant to do, and if you're coming at it from a layperson's point of view, you think, well, should I be in it? It can be a big shock when you suddenly find out that you've got an extra 4 per cent to pay. It's quite a chunky number, and it's cash outright. Ross Matthews from Hayden Development in St Andrews. We are housebuilders there, and I'm here representing the company. From the perspective of the small and medium housebuilders and how LBTT and ADS apply, I submitted a brief report. I'm not sure how far it's been circulated, but if you're happy, I can read through it. You did all get it. Pick out the main stuff, will you? Yes. The main point that's posed from that report is that, from a small housebuilder point of view, if we purchase a site that has a house on it, which is going to be demolished and there's planning consent in place to redevelop that site and improve that site and provide energy-efficient modern homes, we are prejudiced really through the system because when we purchase a site, we pay the LBTT and the ADS for a house that's going to be demolished. If we're from a larger housebuilder point of view or from a greenfield site perspective, if that site was purchased and there was no house there, the commercial LBTT would apply. So it's almost like a double whammy there where we have the LBTT plus ADS and not the commercial rate. I did submit a couple of tables there with the report just to try and illustrate where yes, if we were purchasing a brownfield site, a small site, then the tax take for the Government would be more on the LBTT plus ADS than it would be on the commercial site, but looking at the full picture, if that site was purchased on a commercial basis, new houses were built there, then the tax take is going to be increased because there's also going to be the LBTT on the new house sales. So comparing it just from a pool of tax take, that would result in a positive tax take. The bigger picture really is that we're trying to, on a small builder anyway, we're trying to purchase smaller brownfield sites redevelop them, improve them, create energy-efficient homes and being prejudiced or penalised because of that. We feel that really if you can demonstrate that your site is as proper planning consent to redevelop it and improve it, then that penalty shouldn't be there. It's not an additional dwelling, really. It's bought purely as a development site, but the consequence, maybe an unintended consequence, is that the ADS comes into force just because of the way the rules are at present. Alexander is at the same point. Yes, yes. Thank you, convener. I'm also not my interest in a SME house builder. What you've been covering there was one of the unintended consequences of not being able to get into brownfield sites to develop them, but I think that there's a wider issue as well in terms of the multiplier effect of house sales not happening. I hear from other house builders on a weekly basis of sales not happening because of these two taxes. I just wondered if you yourself or any other panel could comment on that. Yes, from that point of view, we had a small site here in Edinburgh and had a reservation in place why the party didn't quite realise at the time that there was going to be an ADS payment. I'm not quite sure, but when they did, the house sale fell through. That's one on a small site, but if you multiply that up to larger developers, it will be a significant number. Let's try to dig down on that a bit. Is there any other people involved in the house building sector who want to see something of that at this stage as well? SPF, we have members in that sector, too. It adds a complication of tax. The point is that this is a slab tax, so it's different from where we went originally with LBTT, which was broadly supported. Proportionately, because it's on the whole consideration, it's a much greater charge than would normally be the case on the usual residential LBTT scales, which, as was pointed out by Ross, are higher than the commercial ones. Can we get underneath it a bit and give me some real numbers and some evidence? I've heard about one site and how big a problem it is. How many sites are being prohibited from proceeding? I hear the general message, but I think that it would be good to understand a bit more about what the actual impact is. We'd have to survey that specific point and come back to you. I won't want to comment on it without doing that. Ross, can you give us a bit more detail? As far as numbers possibly not, but there are other consequences as well. If sites don't progress because of that, there's also the affordable housing provision as well. If a site did progress and was held back because of LBTT and ADS, if that did progress, then out of the new houses that are being built on that brownfield site, the likelihood is that a proportion of those will be affordable homes, so there's a loss of affordable homes as well. I think that we accept the general issues a bit. I'm looking for information, scale and numbers. As a committee, we need evidence. I've heard about one site so far and general issues, but I think that we need a bit more, as David has suggested, to get underneath that. I've got one statistic that might be useful to this discussion. That is the number of notifiable transactions that we have received since ADS was introduced. There hasn't been a drop in notifiable property transactions since ADS has been introduced, so it's averaging around 103,000 a year property transactions. Ross? One of my main points here is that we feel that it's prejudicial to the small and medium house builders. I know that it's not just all about house builders and the scales of house builders, but it's prejudicial. There may be numbers and there may be numbers of house sales, but we feel that it's most definitely holding back or prejudicial to the small and medium house builders who are looking to typically take on the smaller sites, brownfield sites and improve them. That's where the problem for us is arising. Does MDL also want to contribute to this bit of the discussion, or will we move on to the next bit, some of which are already taken, Murdo? On the back of what would have been your question, can I ask what people mean by a finance bill? Is it a care and maintenance bill that we're talking about, or is it a finance bill? To deal with all those unintended consequences sweeping up? It doesn't matter what it's called. We are referring it to it as a finance bill because we're tax people and we're accustomed to the Westminster finance bill, the main purpose of which is to make changes to the tax legislation. What we're talking about is something that makes changes to the tax legislation, some of which could be care and maintenance, but some of which could be changes that go further than that and are policy changes. It really matters on what you call it, but what we need is a process that is regular. Of course, the other debates that we've had is whether a finance bill has a kind of annual connotation to it, doesn't it? Whether you want it annual or once every two years is currently being discussed in some of the policy consultation and also in the working group, the jury is out on whether you want it every single year, but you need something regular so that there's always an allocated space to pick up the kind of issues. Some of them are care and maintenance, some of them might be new taxes, some of them might be a review of ADS, for instance, or a review of penalties. Okay, is there not attention there in doing it this way between the need to have scrutiny and also the speed that would be required to put these tax changes in in that sort of bill and the consultation that might be required beforehand? Again, unintended consequences are coming about if we've got either an annual or a bi-annual process and making sure that we're able to screw—because this committee would probably be the way that it would land and if there are potentially a dozen changes, two dozen changes, who knows how many changes this bill will be because it wouldn't just be for this particular ADS. How do we make sure that that's all been scrutinised properly and the proper consultation has been undertaken? I'm asking—these are double questions I'm asking, but I'm doing it intentionally. That's part of the discussions that are taking place around the policy consultation that the Scottish Government is running at the moment and there's also work on that elsewhere. However, I think that if you had an annual process or a regular process, part of what you'd build in is where you'd slot in your consultation and I'm not sure that you have to have tax measures brought in really quickly. All those ADS issues that we're talking about are not being dealt with at the moment, so whether it was in one year's time or two years' time, that would be better than just not doing it. Also, if you have better consultation up front for new measures coming in, you'd like to think that we might manage to tackle some of these issues before they get there. Thank you. Willie. Thanks, convener. I won't on the record, so it's important. Thanks, convener. I just wanted to ask if we could put a possible figure on the scale of these anomalies at the edges of the policy here. Elaine, I think that you just said that there have been 103,000 transactions and that is not a drop since ADS came in. As Willie, you were describing some examples where there were some ridiculous scenarios emerging, but what's the scale of it? I haven't had any, but I've had two inquiries in ADS to my constituency office who are 61,000 constituents. It's not a lot, but I'd like to get some kind of flavour from you about what the scale you think it is. I think that perhaps some of the figures that Elaine was mentioning earlier about the number of inquiries to revenue Scotland that 25 per cent or something like that was in relation to ADS. Perhaps the point is that the tax system is creaking a bit. It's the same issues that arise in relation to STLT, of course, partly because of some of the anomalies, partly because of the nature of the tax itself. It sounds like a good idea to tax second homes, but in reality it's a lot more difficult than that. However, it places a strain on the resources of the tax authority dealing with so many queries, not just from agents as well, but also from members of the public. For members of the public, it gives them a bit of a bad taste in the mouth if, first, they can't figure out what the situation is that applies to them, and secondly, if they need to go to the tax authority and all the rest of it. I think that that's the context in which we have to look at it. However, as Charlotte says, it doesn't need to be done hurriedly, so the process could span over a couple of years. I guess the question of whether you have an annual finance type bill or a biannual one is another discussion, but if there were a regular vehicle on to which these things could be put, that would be the helpful thing rather than having to get agreement to have a particular bit of legislation and so on. It's trying to have a regular process, and that would help everybody involved in it because people would know if you want to make a fuss about the ADS charge for developers buying land. That would be the time to make the point and fit it in. If much of the consultation scrutiny and so on—not by the Parliament but by stakeholders—could be done in advance when it came to the parliamentary scrutiny, it would be in a better state. The measures would be better I think that Tony is working on it as well, but will he? The 24 per cent calls that the Elaine's departments receive are not surely all anomalous situations that would require resolution through policy change, are they? All of them? No, you're absolutely right about that. I don't have figures in front of me in terms of the breakdown of the type of inquiry, but I know anecdotally that the vast majority of the inquiries that we're getting are straightforward ADS inquiries. They're not the quite technical, detailed issues that the Law Society has presented to us. I'm not saying that those aren't issues that they've presented to us, but they're by no means regular occurrences for my support desk or my mailbox inquiry team to have to deal with. Tony Murray, you wanted to— We were moving on to the next part of the conversation, but— Well, let's just do that at intended consequences, but just to comment on some of that wider conversation. My name is Tony Kane. I work for the Association of Local Authority Chief Housing Officers, so my background is in public sector housing. I don't think our members are seeing any evidence of smaller sites being sterilised as a consequence of ADS, but we would be concerned if there was any real evidence that small and medium-sized builders were struggling in the market, because there's a big gap in the structure of the house building industry in Scotland, and there are all sorts of conversations about how you encourage development. So, if the tax is abstract—I haven't seen any evidence, but if it is, then we would also be concerned about that because of the impact it would have on the overall shape of the construction centre. Our particular interest at this stage in the conversation before we get to the strategic and market impacts is a simple piece of special pleading, but in my defence, it's the same piece of special pleading that I've been making for the last two or three years, which is that this tax applies to local authorities. I do not think that it was intended to apply to local authorities. It is costing the sector significant amounts of money. Local authorities are now very active in the process of acquiring individual properties to support strategic and operational housing objectives, and I've provided a paper in Mauporgis that was late yesterday based on a limited survey of our members, which gives an idea of the scale of activity and the scale of costs. That paper identifies figures from eight local authorities who, over the last three years, have acquired close to 1,100 properties in the open market and spent something over £1 million on ADS. There is also behind that a substantial expenditure on LBTT in the acquisition of sites and properties for the affordable housing supply programme, which councils, pay and housing associations do not because they have an exemption as charities. There isn't an exemption for local authorities, despite some of the lack of clarity on that in the local government and community committees report from a couple of years ago. Our concern is that the financial impact of that is reducing the effectiveness and the impact of the overall affordable housing supply programme. It may also, on some occasions, result in transactions under the Government's mortgage-to-rent scheme, the homeowner support scheme, not proceeding because the overall cost of the transaction with ADS becomes unviable within the terms of that scheme, which is too expensive for the authority to pursue. Our concern is that one of the unintended consequences here is that councils are paying quite a lot, and it is constraining their ability to meet both local strategic and operational objectives and deliver to the Scottish Government's affordable supply programme targets. I think that you confirmed that nobody likes paying tax, Tony. I got that flavour around the room pretty clearly. Our concern is that housing associations do not pay it, and councils do. I don't think that that was intended. If a Government or this committee was to recommend that all those areas where people are putting in effectively bids to have no taxation in this area, this particular tax to come between 16 and 19, I understand, about £284 million. I suspect that a lot of that is supporting the Government's own house-building programme at 50,000 homes by the end of this Parliament. It cuts both ways, does it not? I acknowledged at my opening statement that this is a piece of special pleading. My point is that we are talking about unintended consequences. The officials that I spoke to at the time were very clear. They had no idea that councils were involved in the acquisition of houses. They had no idea that housing associations were fully exempt from this, and councils were not. It is an uneven set of burdens. Those burdens are following on council rents, to be clear. It is rents that pays the additional money. Housing associations do not charge their tenants for ADS because they do not have to. Local authorities are carrying additional costs. It impacts on rents and on the outputs from the affordable housing supply programme. We do not think that that was intended. Given that we are on rents, Daryl, that is an area that you are interested in, and I am right in saying that. Do you like to just flush out your own issues there as well, like that would be helpful if Tony did not introduce the issue of rents? Tom, I will probably cut across your question here because things are moving on, so forgive me. Daryl McIntosh from Property Mark, which is the National Association of Estate Agents and Arlaw Association of Residential Letting Agents. I think that our concern is or what we have noticed or are noticing is when you are talking about rents' supply. The amount of landlords who are threatening to leave the sector altogether, we had a recent survey done for the tenancy schemes. They said that 27 per cent of landlords were ready to leave the sector within five years. It is increasing the rents as well, there is a lack of stock, which is ultimately increasing rents at the moment as well. I was at a crisis meeting on Friday and they had figures that there should be 24 per cent of the property stock as social housing. In Edinburgh, it is only 15 per cent, so there is a lack of properties there. People need housing, and if it is something on the knock-on effect on to the private rented sector, which it seems that we are having along with all the other tax implications that the landlords or second homeowners are coming across, that is an unintended consequence there as well, and having a knock-on effect on to the rents as well. I have been pushing back on quite a few folk here, so I might as well push back a new Daryl in that case, just because I can, and just to make sure that we are getting the right stuff on the record here. Are you saying that if this tax was not applicable to in the rented sector in the way that you describe it, that in those circumstances that your people you represent would—I will not use the word guarantee—but would reduce the rents if that was not there? You would see that there would be more properties on the market, there would be more availability, there would be more choice for tenants. At the moment, there are some properties that are getting 5, 6 or 7 applicants for a property in certain areas, so if there are more available properties, then yes, it should ultimately bring the rents down. I would like to explore that a bit further. Is there a danger that this conversation addresses basic housing policy? The significant growth of the private rented sector, significant reduction in the social rented sector over a number of decades, some people would be comfortable with that choice, others would not, but this is a discussion about one element of one tax rather than overall housing policy and a discussion about how comfortable we are with the growth of the private rented sector as opposed to a different balance of tenures. Can any of those who are advocating for the abolition or reduction of this tax from the private rented sector, on the basis that that will benefit tenants, hazard a guess as to why tenants organisations who are not represented around the table here today are not campaigning for a reduction on the tax that their landlords pay. Many tenants organisations, in fact, are much more motivated to try and take action against on-going illegal fees and charges being paid by tenants to landlords and letting agents. If the real desire here is to reduce rents, it does not seem to me that a reduction on tax that is paid by landlords is going to achieve that. Daryl, do you want to respond to that? Just from the figures that we have, more landlords entering the market if there was less tax for them to pay and, as I say, there would be more and better stock for a tenant or proposed tenants. Several of the written submissions make that claim that if there was more in the way of private rented accommodation, that is an increase in the housing stock. If people come out of the private rented sector, that is a reduction in the housing stock. It clearly is not a reduction in the housing stock. People who cease being landlords do not knock their properties down. Briefly, I do not think that there is any evidence that in the private rented sector the tax is pushing up rents. I think that there might be some evidence that it is discouraging new investors on the bitalat side, but that is a wholly different question and speaks to what the Scottish Government wants to achieve in terms of the market overall. I think that that is a later part of this conversation. However, I think that the evidence around bitalat investment is made more difficult to interpret by all the other changes around the taxation of private rented sector that have taken place over the past three or four years, which might well have had a similar dampening impact on the market. However, I am told by people who know that bitalat investment in this city, for example, is probably now flat and the sector is not growing. That is a bit of a change in the way that the market has been operating. I think that that is probably nothing to do with ADS. We are probably better getting into that wider question then. Emma, do you want to kick it off? Thank you, convener. We have talked about the impact of ADS on people personally and now drifting into rental. In our briefing paper, it talked about the impact of tax changes should rarely, if ever, be seen in isolation. There are many other factors that influence the markets, and ADS is no exception to that. I am interested to hear thoughts about what are the other contributing factors for the impact on the housing market. There are certain times of the year when more folk will move house or choose to buy, so there are other factors that contribute not just to ADS. I will add in to that question. The legislation was brought in to stop distortion in the market effectively after the UK acted. Had the UK, had the Scotland and Scotland not done something similar, would that not have led to a situation where people from south of the border would be coming into Scotland to try to buy as many of those homes as they possibly could and create distortion in the market? When we are having that discussion generally, I throw that in as another element for push-back-at-me on, if you want to. Who would like to kick off, David? The measure was introduced swiftly after George Osborne made his proposals. Whether it could have led to a real distortion or not, I guess we will never know now, because it was introduced at the time. Obviously, the tax has been increased since that time recently in Scotland as well. We will see what impact that has on potential buy-to-let investors, but I think that there is a wider picture here. I would agree with the fact that I should not look at the tax in isolation for its impact on the markets that was raised. There have been controls on affordability for buy-to-let investors. I think that buy-to-let investment has gradually fallen as a proportion of lending that has been going out. There has been the private rented bill, which has obviously changed the procedures for landlords and tenants, and maybe the balance of risk there was shifted as well. I think that there has been several changes to the environment for buy-to-let landlords in particular, which had mushroomed from the 1990s onwards. I am not surprised to hear that it is now flat in terms of new buy-to-let investment, even in Edinburgh, which was traditionally so strong. I think that that is one element that is adding to the obstacles to landlords, or at least new landlords. I suppose that the question is whether, if they are selling into the private-for-sale market as to what the potential consequences of that are, but again, you have other policies, such as support for first-time buyers and so on, which will add to that. Mike, you are obviously here representing the Scottish Association of Landlords and the Council of Letting Agents. Do you want to reflect on some of what you have been hearing? Yes, thanks very much, chair. We are not calling for the abolition of this tax, we are just interested in providing evidence on the potential impact. I realise that the Scottish Association of Landlords, by definition, is a landlord organisation, and every change in legislation, we have this concern, and it does not always play out. I think that the issue for me with ADS is the application in a uniform way right across the country from hotspot markets. In Edinburgh, I would still say that it was a hotspot market, to small town Scotland, where the markets are not as hot, that the impact is likely to be more significant over the peace. The linkage to rents, I am not convinced about. We would need to look at that in some detail. We have lots of anecdotal evidence from our members who we meet regularly around the country of a branch meeting network. At the top of their list of concerns are the UK tax changes at the moment, rather than necessarily ADS. Second to that would be concerns about how they are going to meet the energy efficiency measures in terms of financing them. I think that it is too early for us to dig ourselves into another position of saying that private renting is going to come to an end or something like that over this issue. Just for context, because I just do not know what is changing at Westminster, because that might mean that there will be a consequence for here. Sure. There will be other people in the room who can answer that better, but essentially mortgage tax relief for buy-to-let mortgage was removed previously, and rental income is now taxed rather than rental profit. In terms of just giving you a quick kind of— Oh, that is helpful. Do you expect that to impact on the rents as well? Ultimately, it would if there was a decrease in the stock of private rented stock, but I think that the biggest impact from that is landlords leaving the sector. Now landlords always leave a sector. A landlord has a life cycle to a degree, so there will be some landlords that leave for every piece of legislation, but the UK tax is the number one consideration. We get a lot of feedback from accountants that their clients who have buy-to-let businesses are finding profits or tighter taxes more. Because of the restriction in the interest relief, there are also measures coming through on the CGT cap against tax side, which I think will also impact on the buy-to-let sector. Yes, just to reiterate that the UK tax changes obviously affect landlords up here as well. Many landlords are perhaps deciding that the after-tax results are not worth continuing with or alternatively incorporating because you can pay a lower tax rate if you run it through a company type of thing. One thing that is worth going back to in terms of why the tax was introduced, if that is okay, is that I wonder whether it was entirely introduced to stop landlords south of the border rushing up and buying the entire housing stock in Kirk and Tillich or Dumfries. I suppose that they would get there first. Was it not also the case—this is very complicated, and I do not pretend to understand it—that if we had not introduced it, there would have been a big hole in the finances of Scotland because of the impact of the fiscal framework? That is one of the issues. Murdo is nodding sagely, so I am not sure— I am pretending to understand it. I am either pretending to understand it or I am agreeing with it. Yes, it is the kind of block-grant adjustment that if Westminster had a three per cent, so yes. I think that we were almost forced into it under the devolution with strings arrangements, but the thing to perhaps bear in mind though is that the devolved taxes are here to stay, and other things like that are going to happen. When we are asking for perhaps different procedures, we are going to have to keep reacting to what is going on either in Westminster in relation to SDLT or in relation to other taxes. The impact on individual landlords is important. Most landlords own their properties and rent them out on a personal basis rather than on a business basis. Taking the full rental income into consideration for tax purposes often pushes them into a higher tax ban, which is one of the impacts that is promoting or pushing folk towards incorporation, setting up businesses. To the extent that that is driving a professionalisation and discouraging amateurs, we would regard that as a good thing, but I do not think that there is any evidence on that at all. I also always thought the argument that there would be larger numbers of buyers from the south moving north to be speodious, let us be honest. I think that renting in the Scottish context, if you are used to the English legal system, would be quite tough and translating up would be tough too, and I do not think that there was any evidence of that would happen. However, the other objective of this measure was to protect market space for first-time buyers, and that was stated in the policy note around it. My understanding is that there is some evidence that first-time buyers have returned to the housing market in Scotland in numbers over the last year or so, two years or so. How much of that is down to ADS is another matter, but there is some evidence that first-time buyers are now more strongly represented in the mortgage market? I am not sure. Do you have any information, Elaine, that could, in terms of... Not with me today. Obviously, there are changes to the legislation to encourage first-time buyers. We will have information in the office in relation to that, if it is useful to the committee, we could send it in. Emma. We supplement since the word Dumfries was mentioned. There is a big variation of prices of houses in Scotland. In Edinburgh, you can buy a house for £280,000, whereas the equivalent property bill will be about £121,000 in Dumfries and about £130,000 in air. Does the wide difference in property value across Scotland impact where landlords might choose to purchase, such as in Cercwbry, for instance, or something like that? Mike, do you want to go to that? Yes, very much so. If we can use our letting agency business, which is in Falkirk, for an illustration, the rents were always low and stable, and that fitted in with the average wage in the area and so forth. When buy-to-let investors were buying property, they were at market prices, which were sensible prices. In Edinburgh, to contrast that, lots of small towns will be like that. The thing about the 4 per cent, although in pound note terms, 4 per cent of a property in Edinburgh is going to be higher than 4 per cent of a property in Falkirk on balance, that 4 per cent has a greater impact in a small town market proportionately in terms of the price to the average in the market, adding 4 per cent on. However, there are lots of buoyant PRS markets in every small town across Scotland that function perfectly well and do a good job. Does anybody want to raise any points that have not come out so far? I have a couple of questions that I still want to ask, but it takes us back a bit. Does any of the representatives around the table want to make sure that they have the chance to tell us in terms of this evidence-taking session? I am beating the drum for the small builder here, but there is a relief available if there is a purchase of six or more properties, if they are purchased separately or as a linked transaction, if I have picked up that legislation correctly. Again, it was really just to highlight that that is disadvantaging the smaller builder. If you are buying six or more, you will get relief from the EDS. The record does not apply if it is in linked transactions, it has to be part of a single transaction. I thought I read that if there was a linked transaction, it would apply. It is six or more as part of a single transaction that it applies to. Does everybody else agree that you do not want to don the record wrong? I think that everybody is making a mistake that a single transaction has not been defined in the legislation, so whether it could have different completion dates or not, but I agree. Link transactions is a technical term that means any transactions between the same seller and purchaser or persons connected with them. A single transaction is not defined, but it is a bit like an elephant. If you are buying six at once and it is the same deal, then there is no EDS, but it does not work across linked transactions. That was so of heeding developments, any lawyers' costs now. You are going to get complaints from either of these lawyers. I have a question to ask in terms of what is happening at Westminster. Those are the anomalies that are being picked up here, but there are people here who are also involved in a UK perspective in terms of those anomalies. How are they being addressed at Westminster? Are they being taken forward in any finance bill? Are they being taken forward in any process? The same things must be happening to the same legislation south of the border. Has anyone got any knowledge of that? Some of them, I am sure that Joe can comment also. Some of the similar issues have been addressed in legislation, so the granny flat exemption or relief, or whatever you want to call it, was introduced into the higher rates of additional dwellings for STLT through a finance bill. Some of the issues are also trying to be addressed through improvements to the guidance or looking at other ways of framing guidance. The Welsh Revenue Authority, for example, which is not clearly Westminster but is another tax authority, we can pay attention to or are trying to design an interactive tool that will help taxpayers put things in and it will ask other questions and hopefully throw out the same answer. That is a sort of trying to deal with it through guidance and so on, but a lot of the perceived anomalies with HRAD would have been addressed through the annual finance bill process by being raised by stakeholders and discussed with HMRC and so on. Do you want to reflect on that? To agree really that the issues have been raised more as we have gone along. It has been obviously harder over the last 12 months to get anything changed at all just because the Government has been otherwise engaged. In terms of the level of complexity and the number of queries that we are seeing for taxpayers south of the border, I would say that I see a similar number. We have the same issues with people accidentally falling into that additional dwelling supplement for SDLT as we do for LBTT as well. I think that the point about the Westminster process is that because of the annual finance bill mechanism, it is a lot easier to get things changed. The granny flat was thought of at a fairly—I cannot remember exactly when—but it is quite easy to get it put in and to the legislation because there is that process. If you cannot get it in one year of finance bill, it can go into the next year. I think that it has been quite helpful understanding what the anomalies are, where the tensions are in the EDS process. I suspect that the committee will want to agree to have an evidence-taking session with the minister responsible for this, and that will give us a chance at that evidence-taking session with the minister to probe some of those questions with he or she, because I cannot remember which minister it is. Thank you very much for coming along today and helping us on deliberations. I am very grateful. I close this meeting with the fans, please.