 Ffifth meeting in 2016 of the Finance Committee of the Scottish Parliament. The only item on our agenda today is stage 1 consideration of the Land and Billings Transaction Tax Amendment Bill, on which we will hear from three separate sets of witnesses this morning. First of all, I will please remind everyone present to turn off any mobile phones, tablets or other electronic devices. Before we start, I would like to invite Lizzie Brenn MSP to declare any relevant interests. I have no relevant interests to declare. Thank you very much for that. Turning now to the bill, our first panel of witnesses consists of John Blackwood of the Scottish Association of Landlords, Paul Curran of the Scottish Property Federation, Darryl McIntosh of the National Association of State Agents and Marian Reed of the Chartered Institute of Housing Scotland. I intend to allow 75 minutes or so for this session. I would like to welcome our witnesses to the meeting. Members of the committee have received submissions from each of our witnesses, so we will go straight to questions from the committee. Obviously, we are very tight for time this morning. We have only got about four hours in total for our three panels. We will get the budget this afternoon, so what I will do is I will be asking questions of individual members of the panel. Other members of the panel can comment if they wish, but I am not going around necessarily all four members with the one question, otherwise we will be here all day and colleagues will not have an opportunity to come in, and I am sure that many of them have questions. I will set the scene, if you like, with some questions, and members will then come in subsequently. First of all, who will be the first question? I would like to ask Mr Blackwood. In your submission, paragraph 2, you talk about the issue of the 3 per cent rate for the supplement and the impact that it might have on inward investment. You said that the tax rate should be lowered in the purchase... No, you said here, sorry. That will help to attract investment to Scotland, despite the Sfidwall legal framework. For this reason, we believe that the tax rate should be lowered in the purchase price threshold raised. How much investment in buy-to-let comes from outside Scotland as a percentage of the market? That is one thing that we are not aware of. We are certainly aware that we need to encourage investment here in Scotland, and that is exactly what we would like to be doing. We have a different framework of regulation on the private rented sector, and that is just about to change even more with the recent housing tenancies bill. We feel that investors will view Scotland in a different light in the future. In order to meet the Scottish Government's aims of increasing investment and growth in the PRS, we want to attract investment. If that is out with Scotland, we want to do that. The Scottish Property Federation has said in the report that less than 2 per cent of built-in PRS investment is being directed to Scotland, so it is not having much impact at the moment, the current situation. If we have a level playing field with the UK, we are going to have a level playing field with the UK after this, so how is the legislation going to make life any more difficult in Scotland, and would otherwise be the case? We will not have a level playing field because of the framework of regulation that we will have here in Scotland, so investors will view that differently. My colleagues representing institutional investors can tell you more about that than me, as to their attitudes about investing here long-term in Scotland, as opposed to what is the case at the moment. We are concerned about the future. We know that we need to increase investment, however we do that, and that Scotland needs to become a more attractive place to invest in the future. Basically, you are also saying that this will have a consequence for the house-building industry itself as buy-to-let purchase as a significant proportion of off-plan sales. Other witnesses have said the opposite, in the fact that it will free up more private houses available for other people to buy. I think that our main concern is the lack of appropriate datasets for us to look at the situation and see what is the concern here in Scotland. Obviously, all we are going from is the feedback that we are getting from our members and the concerns that are raised by them. We certainly know that we want to increase investment, we want to increase investment and new-build properties as well, too, so how can we do that? We do not have available information to really see how much of an issue really is this in Scotland. The finance secretary is very keen to make sure that first-time buyers have an incentive, if not certainly an advantage against private landlords. We do not believe that there is that concern or that issue here in Scotland. However, again, there is a lack of appropriate datasets to quantify that. Thank you for that. Mr Curran, you said in page 12 of your own submission that the supplement be imposed as a slab tax—exactly the same approach that the Scottish Government was keen to move away from. It took responsibility for a stamp due to land tax in Scotland. Can you tell me a bit on what concerns you might have about that? I think that what we are inferring is the issues around having more of a progressive taxation system. With the changes to LBT, we took away that threshold point—the £250,000 threshold point—and everything was priced around £249.95. It is just trying to get away from that approach and avoiding the slab tax approach to this particular policy. The issue is really a case of, should there be something from an institutional investment aspect that there should be more exemption in terms of what is going to go in there? At the moment, the way that it is drafted, we do not have any exemptions or any trigger points for the tax to come into force. You say that there are no exemptions in actual fact, but our esteemed adviser to the committee, Professor McEwen, has written an excellent paper on behalf of the committee, which looks at the potential to ride a coach in horses through this legislation, instead of some potential ways in which people can avoid paying it, particularly companies. Surely, if you add a lot of exemptions, the legislation will effectively become virtually worthless? What we are trying to look at is how we keep Scotland competitive, how we attract the global capital that we have talked about in terms of investment. The large majority of private development finance now comes from either overseas or large UK institutions, so that waterfall effect of funding into Scotland, particularly on things like large-scale PRS, will be impacted if we do not have an exemption in some of the larger scale developments. With the scale of development that could be planned and in terms of the unit numbers, it really is something that we have to get in there. It has to be competitive in terms of the scale of development that is possible down south, compared with the scale of development that is possible in Scotland. It is looking at it from the institutional side, but also from a development perspective SME-type housing provision, where it is looking at smaller-scale developers who are looking at an element of funding that is required. That funding is dependent on getting an element of pre-sales. If that pre-sale is not achievable through some form of buy-to-let opportunity, the development might not start. It looks to me, Mr Mackintosh, from your submission, that that would not necessarily be a bad thing. In paragraph 5, you have said that fewer people entering the buy-to-let market is encouraging for first-time buyers because they will not be in competition with as many individuals looking to invest in buy-to-let properties or second homes. Are you saying that, without the competition from those big investors—theoretically big investors that we are talking about—it would keep house prices at a more reasonable level for first-time buyers, for example? Theoretically, if you are deterring investors with the additional tax, the first-time buyer market should improve. However, the main stumbling block will always be the lack of finance that is available to the first-time buyers, which is what we are finding. Again, we do not have any evidence—we are not hearing it from our members—that first-time buyers are losing out to investors. They are not being priced out of properties. They are just unavailable to purchase them at the moment through the lack of finance that is available to them. In your submission, you also expressed a concern that, for those people who decide to invest in second homes on particular buy-to-let property after April, it is likely that rent rises, landlords are tempted to recoup because of paying the additional home supplement. Is that a real concern for you? It will be, yes. If investors have to pay additional tax, it is basically from their budget that they are not going to be able to do for any improvements for any rental properties. That is going to be a big concern or to increase the rents. Before I go on to the chat and shoot house, I wonder if members of the panel have a view on what the general margins are in terms of landlords in Scotland. I know that we have about 150,000 and the average landlord is only about 2.5 properties, so some only have one, two, some of many. However, what are the margins that landlords in the buy-to-let sector are working to at the moment? Does anyone have any kind of information on that? I can add, convener, that it obviously depends on the kind of marketplace that you are investing in. We have some small-scale landlords with one or two properties that might be investing in property in the region of £200,000 or thereof for housing multiple occupations. Potentially, perhaps the yield there is higher for some than it would be with somebody with a small one-bedroom flat in the centre of Edinburgh, for instance, so therefore their yield could be much smaller. It depends on what your motivation is as an investor. Many people are investing, like myself, looking longer-term, not looking at short-term gain, so you are looking at capital appreciation and, potentially, you are seeing it as part of a pension pot, effectively. I think that it is very difficult to assess average yields because of the variety of the marketplace that we actually have there and different motivations of individual landlords, too. You have basically said in section 2.3 of your submission that it is our understanding that the policy will not directly impact on the build-to-let market because you have said that it remains small. I wonder if you can expand a bit on that. I think that that is not the main thrust of our submissions, so I have probably got less details on the build-to-let market. No, it is because we have touched on that, obviously, something that we want to do with that. That is not the area that we are concerned about, particularly in relation to our members. Fair enough, I will ask you something else. I mean what you have said in general in section 1.3. We agree with the general principles behind the policy, however, it is more important to ensure that it does not have any unintended consequences or a negative impact on the overall housing market. I wonder if you can comment on that. What unintended consequences concern you? I think that there are a range, potentially, and they relate primarily to the private rent sector, which clearly other colleagues have been highlighting, but also to the housing association sector and local authorities. Both housing associations and local authorities buy properties out of the owner-occupied market for a number of reasons. It may be in the case of local authorities where home owners are struggling with mortgage payments and there is a scheme whereby local authorities can buy those properties and that homeowners rent. There is mid-market renting through the national housing trust. Mid-market rent is a very important part of the market at the moment. What it does is provide affordable housing for people who, potentially, they cannot afford to buy, but they may not fall within the remit or be housed through the social rented sector because of pressures in that sector. We recently did a survey, a member survey, in relation to evidence that we put together for the fairer Scotland submission that we put in. In that, our local authorities are keen to increase their capacity to build, but they have restrictions such as land supply, cost of land, or sometimes planning issues in terms of the length of time that it takes to get things through. They are identifying that being able to buy properties on the open market is actually filling a niche in terms of being able to provide affordable housing. I will open out the session to colleagues around the table. The first person to ask questions will be Gavin, to be fought by John. First question. I understand that a stakeholder's reference group has been set up by the Scottish Government very quickly. Are any of you on that group? Mr Kerr? Yes, I think that it is SPFR. SPFR? SPFR, okay. The other three organisations are not on it. The policy objective—you have seen the policy memorandum—is to ensure that the opportunities for first-time buyers to enter the housing market in Scotland remain as strong as they possibly can. Obviously, the benefit of first-time buyers is that it is less attractive for buy-to-let properties, but the disadvantage of first-time buyers, from some of your submissions anyway, is that there could be a reduced amount of new housebuilding and activity on the market. Taking those two factors into account—the pros and the cons for first-time buyers—is legislation ultimately making life better for first-time buyers? Is it neutral, or does it potentially make life trickier for first-time buyers? I am happy for anyone to answer that question first. I suppose that it would be neutral at the very best. Obviously, it would be detrimental to them. Potentially, what could happen is that you have landlords who could, at the moment—for instance, as I mentioned earlier about investing around about £160,000 to the £200,000 mark—because of the increase in taxation, overall, their pot of money is still the same amount of money, so they would then need to think, I will have to invest in something that is perhaps smaller, a smaller unit. That would take them into the same bracket as perhaps the first-time buyers in the 145 bracket. Therefore, we are concerned that it might push some investors who are not potentially competing against first-time buyers at the moment into competing with them. Although, to be honest, we do not see the research or the evidence to say that they are competing with them in the first place. I wonder if other panel members have views on that initial question. I think that one of the main things in terms of first-time buyer market is all about affordability. That is the key issue, and affordability is obviously impacted by supply of housing. If we are going through something that would make it more difficult for developers to obtain development funding, especially in the SME aspect or type of company, it is going to reduce potentially the availability of houses for people to buy at the lower level. Any other thoughts on that one? Housing markets are not a national thing. They are also very local, so the consequences of that will depend on the locality. There is also the rural-urban difference. There might be scarcity of property anyway in rural areas. In some instances, if the consequence of that is squeezing out some of the private sector landlords, that might be a negative impact. It might be that even within those localities, because of the economy that first-time buyers are struggling in anyway. That is why we are recommending that it is definitely important to have a review period and monitor how that would work on the ground if it is implemented. One of the issues that has been put before us is that there is likely to be what is called forestalling, i.e. lots of activity that could take place before the 1st of April in order to avoid that 3 per cent tax. On what your organisations have seen on the ground since the announcement in the middle of December, have we seen any evidence on the ground of forestalling taking place, or is it too difficult or early to say at this stage? They have noticed that there is a spike already. They noticed that with the introduction of LBTT as well that there was a spike. Next question is the second policy objective. It is necessary to ameliorate the likely distortions that will arise in Scotland when the new SDLT higher rates are introduced. Obviously, that is happening south of the board as of 1st of April. That is one of the reasons given for bringing the policy in. On the face of it, it seems like a plausible policy objective. Is it? Are we likely to see an influx of buy-to-let investors from south of the border if we do not do this by 1st of April? It is quite hard to say or to measure that. We do have a different regime in terms of the private rented sector. There is a lot of work that has been done to support the sector and to raise standards, but that includes additional regulation in the new tenancy regime. Potentially that might deter investors, because dealing with different countries and different regimes is not in itself always entirely straightforward at the best of times. We are moving in a very particular way in Scotland, but it is hard to quantify. I will come to some individual papers. If I may, I will start with the Scottish Association of Landlords. You have given a range of potential exemptions or reliefs that your organisation would call for, should the legislation proceed. I can read them out. Exemptions for six-plus properties, similar to multiple dwellings relief. Exemptions for new build. Exemptions for joint purchase. Exemptions for houses that are not suitable for mortgages. Exemptions for properties on the market for greater than six months. Exemptions for existing buy-to-let holiday homes. There are a fair number of exemptions. Can you just briefly, and I don't give us chapter and verse, but what are the consequences of not having exemptions for some of the measures that you've called for? It's courage investment, and that's our biggest concern. We want to encourage that. In fact, we want more people to be investing in the private rented sector. That's institutional investors as well as individual investors. We took approach with this paper and a submission is, if it's going to happen and we all know it's happening in other parts of the UK, what could be the consequence of that and, equally, what can we do to mitigate that. We've looked at specific areas here to think that there may be an argument for exemptions, and that would help to alleviate the potential negative impact of the proposal. Okay. For my own benefit, the expression, a property that is not suitable for mortgage, what does that mean? We have some properties of non-standard construction, and it's a case of the perfectly habitable. There's nothing wrong with the properties, but for mortgage purposes, perhaps because of when they were built or the kind of construction, like timber-framed, for instance, that's a concern for some mortgage lenders. Therefore, they are not in the mainstream, is it where they are? Perhaps we need to encourage them to remain in the marketplace and to be turned over if the seller wants to get rid of them. We want to encourage that, and maybe that's something that we could be looking at there too. But first-time buyers aren't competing in that marketplace. Sure. Okay. The idea of discouraging investment could apply to a few of the exemptions or reliefs that you've called for. The one on the exempt properties that have been on the market for a longer period than six months, what's the explanation for that relief or exemption? Again, behind that was that there seems to be an assumption that there's competition here, so we've got first-time buyers vying against private landlords here for the same properties. A, we don't see the evidence of that, but I think that the evidence would be such that if it's been lying there for months and nobody's buying it, then obviously landlords are not interested in that. Rather than having a property potentially lying empty and not turning over in the marketplace, is it not better to actually shift that, and if that's shifting it into the PRS, then it's providing more housing for people to live in. We saw that as a positive step. Scottish Property Federation paper, when you talk about some similar exemptions, the main exemption that you seem to be calling for is an exemption where the transaction involves more than six properties. Can you just expand on that, please? There are two aspects to one of the large-scale PRS investment. What we want to avoid is the position where there's no exemption on that type of investment. That's one of the main opportunities to deliver a lot of the housing requirement that's out there at the moment. If we don't have a level of exemption, it would put us in a less competitive position, certainly against the UK, in trying to attract institutional or overseas investment into those large-scale projects. There is definitely a huge appetite to invest in that, but the more or the more costly it becomes to do that, the less attractive it is for investors to tick the box in terms of their investment committees. The other section on that is really smaller properties. SMEs again, a large proportion of the property market was decimated, which we need to remember back in 2008-2009. A lot of SME house builders no longer exist because of the crash in the property market, so we really want to encourage that sort of entrepreneurial type of organisation to support and deliver a large proportion of new-build property that's required to meet demand. By bringing in an exemption at a level of six properties on individual new-build development, that gives an opportunity to be slightly more competitive than maybe the rest of the UK. However, certainly in terms of the scale of development in Scotland, it's something that will allow something to be funded, because the smaller SME-type organisations are heavily dependent on funding. That funding on those types of sites is very much dependent on achieving a level of pre-sales, and pre-sales tend to be more by-to-let type landlords. You have a sister organisation in the British Property Federation, who is presumably involved in the SDLT change consultation. From your discussions with them, are there things that we can be learning from that consultation and that process that might speed things up and help us to avoid making mistakes up here? From my knowledge of their discussions with the UK Government, the exemption levels that they are looking at are higher. They are looking at 15 units as an exemption level. That has been taken against as something that is key in retaining the attractiveness of institutional and other types of investment. The reason that we are looking for something lower is just recognising the scale of the Scottish market in comparison to the rest of the UK and the scale of the smaller investor and the smaller developments. We do not have London-scale developments all over Scotland. We tend to depend heavily on smaller schemes of 20-30 units, so having six units on some of those developments is a reasonable level. We have now been joined by Jackie Baillie, and the next question to be asked will be by John to be fought by Leslie. I think that London was just mentioned in the last answer, so I was thinking about London. If somebody is sitting in London with £0.5 million spare and they are thinking of buying a house for £200,000 in Scotland, a second home, whether it costs £206,000 or £220,000, is that really going to affect them? They are not going to go to Birmingham and save a few thousand and pay £190, are they? I suppose that my ultimate question is, do we need to worry about what is happening down south? Have we not got a separate market up here? I do not think that we have got a separate market. It is very much a competing UK market when you are looking at investment, whether it is small-scale, large-scale, people are looking at what that individual city competes as. It is whether you look at the larger-scale property market where we are very much competing against Manchester, Birmingham, London and all the regional cities. However, as an individual investor with £0.5 million or £200,000 or whatever they have to spend, they are going to be looking at the yields that they can achieve on that, so the minute that we start adding an additional level of taxation on that, it becomes less attractive. If they are looking for a second home for themselves, then the yield is not an issue, really. Would location not be more of the issue, rather than— Yes, but if you are looking at location, then it is very much a personal purchase, so it is not an investment decision. However, the bill, as I understand it, is looking at personal purchases as well as investments. It is, but in terms of the buy-to-let market, and this is what it would probably impact most on, the relevance is more to what the investor view would be on it. I can answer for individuals in terms of doing that. However, a lot of villages in Scotland are being gobbled up by people who are making personal decisions, are they not? I think that there are, yes. Potentially, yes. I suppose that, following on from that, you have argued that the market is all one for the UK, and it is not a separate one in Scotland. I suppose that I still feel that some people actually want to live in Scotland and that the price is not the only factor. Say that we waited for a year and saw what happened and then legislated if there was a problem, is that something that you think would be a good idea or a bad idea? I do not mind who answers. If I may answer that point and just come in there, I think that that would be a more sensible approach. I think that we need to actually do more research into this, actually understand the dynamics of this issue in Scotland. Is there a need for a surcharge, and if so, specifically where? I take your point to completely about second homes. I think that that is a completely different marketplace. As a Parliament, as a Government, that should be taken into consideration. For people who are investing like the people we are representing, they are investing in providing homes for people, which are primary homes for people. I think that that should be seen differently and not tagged the same as somebody who just wants to have a nice little bolt hole in Scotland somewhere. You are still confusing with first-time buyers. If the person cannot afford to buy a house, they are forced into the private rented sector. I know that there is a whole issue that some people want to be in the private rented sector, but some people want to buy and their second choice is the private rented sector. If we unfairly advantage the big company by giving them exemptions, does that not even further disadvantage the first-time buyer? I think that we need to look at the motivation of that investment. I know that it is difficult to analyse and to regulate for, but at the end of the day, if you are investing for the purpose of renting out that property, whether it is as an institutional investor or as a private landlord, you should be encouraged to do that. We need more of that, as the Scottish Government has said very clearly in its objectives to grow and develop the PRS, so that is what we want to see happening. In my view, that is not a growing and developing second home ownership. Presumably, we do not want to help the private rented sector at the expense of the box sector. Yes, we want to help both in a sense. We want more investment, yes. However, giving exemption to somebody who has got six properties or 15 properties is like giving cheaper rates for the supermarket compared to the corner shop. Does that not disadvantage the first-time buyer? I do not know the answer to that question. We need more research to understand that issue, and that is our concern. We are not understanding exactly what is happening here in Scotland. There has been research done in England and in the south-east of England in particular, but we do not see that correlating here in Scotland. We could be wrong, it is just that we do not have the data sets to properly understand the issue. The average house price that first-time buyers are actually going for and it is costing them £133,000. We do not see that as a major issue in the sense that first-time buyers have actually been pushed out of the marketplace because of people with second homes or, indeed, my main concern is private landlords and people in the PRS. On that particular point about whether it is unfair to give more exemptions to a company with six and 15 houses than to the individual person who is trying to get on to the property ladder. Do any of you have other thoughts on that? In terms of disadvantaged, I do not think that it does disadvantage because, again, you are looking at housing supply. It is, again, back to affordability and the more houses that are built, lower prices should be. The more that it can be done to encourage an increase in supply and affordability, whether it be PRS or homes for sale, it has to be beneficial to everyone. That is getting a bit wider, but I am sitting in a constituency with loads of empty land and nobody wants to build on it. I feel that the builders are guilty of not doing what you are suggesting that there would be more demand and that they could build more. If we could touch on students, which I do not think that we have touched on so far, the whole question of purpose-built student accommodation, I do not have any of you who have expertise in that, but there has been a suggestion that they should be treated separately. I wonder whether anyone supported that or opposed that. I think that it is a slightly different asset class and that it is not a property that saw in the open market for letting. We have covered that in part of our submission that we would support that being exempt from as well. I had the case where property was built in my constituency for students, but then it was sold off to individuals who were not students by mistake. I wonder how strong those categories are that, because we say that something is purpose built for students, they should be treated separately, presumably at some stage they could be sold off separately. I mean that it is more of a question for planning and the classification around what the buildings have been constructed for and what consent they have. I am, in fact, Lesley and myself are both on the DPLR committee, which generally does not look at the policy, but one point that came up for us was the question of valuation of properties. I wonder whether that is a concern for anyone. I did not particularly pick it up, although I read the papers and I confess fairly quickly. Will it be clear how properties are valued, do you feel, from the legislation or is that a concern? I suppose that it is related to that. Will there have to be frequent valuations if somebody has a property that is near a boundary of value, like £40,000? If nobody has a comment or is that fine, I have lots of other things that I can ask as well. Another one, again, I do not know if any of you have experienced this, but the whole question of whether you could pay up front and then reclaim later on if you have sold your property, and because some people in Scotland are buying first before they actually sell, I mean they might be trying to sell first, but they do not manage to for various reasons. And there are other reasons as well why you might pay up front the tax and then have to reclaim it. There have been concerns raised about that. Is that something that any of you have concerns about, or is that not an issue? It was a concern that had been raised more for people accidentally falling into it or through no fault of their own. As you hit on somebody that has already purchased and then their sale falling through their purchase, they have then got to complete their purchase and they then have two homes, which they have never had any intentions of having anyway, so they are unfairly penalised. They probably do not have the finance or they are scraping together the finance to pay any bridging loan and then they have those extra tax that they are going to unfairly or unjustly have to pay as well and then claim back. Is there a better way of doing that then? I do not know what we would do. I mean, the fear from my point of view would be that if people could say, well, my intention is to sell my house, you know, and then lots of people say that, well, the whole system starts falling apart because then you have to start chasing people a year later and seeing, well, did you sell it, did you not sell it? I mean, it's tidier to do it this way, but I kind of feel, as you've said, that for some people that would be quite an issue. Yeah, yeah, I don't know the best way. Okay. I mean, another specific example was if a family was to buy for their children, they would be charged. Is that a really good problem? I would think so, yes. We see that a lot certainly in the university cities that people are purchasing for or with children on the mortgage as well or to get them on the ladder or something, in effect, helping them to be first-time buyers as well, so that's going to be an issue as well. Could they not just lend them the money or do they not trust their children? I think that my final point would actually be on housing associations. I realise that none of you are housing associations, but I don't know, and we don't actually have any housing associations coming before us today, so I don't know if any of you are comfortable in that area, but should they be treated any differently or is there an issue there that they should be just treated like everybody else? I think that the concern around housing associations is around the mid-market rent area, where housing associations have subsidiaries and they deal in a slightly different way or under a slightly different regime, but if they were subject to this, this would affect their operation in terms of what they were able to do and their flexibility, and they are meeting a housing need in sometimes in quite pressurised areas for, as I said earlier, people that can't afford to buy, but they're not going to fall into the criteria where they're eligible for social housing because there's such a squeeze on the waiting list, so there are definitely implications. So they're more kind of competing with the normal private rented sector, but they're slightly cheaper, as I understand it. Yeah, they're a mid-market rent, so they're, I don't know what the rate, I'm not an expert on the rate, so where they sit, but yeah, it's kind of a mid-market. I mean 80 per cent's been mentioned, but I think it varies, yes. So that's their concern. So should they be treated in the same way as the normal private rented sector, or do you think they should be treated more favourably perhaps because of this kind of social aspect? Yeah, I think they're meeting a slightly different market potentially, they're meeting a market that potentially can't go out there in the marketplace and go right, I want private lets and you know I've got a whole range of choice because I have that income, they're filling a niche and that's why they're there and that's why local authorities have involvement in that as well. So I mean it's quite a complicated housing system, there's quite a lot of things going on and just trying to balance all the different bits and not have these unintended consequences on parts of the market that are meeting needs that might not be met elsewhere, it's quite important to get that balance right. I mean I think I've raised an important point there, this whole point about things being complicated and complex and I mean my hope had been and I think we did achieve it with LBTT that it was a fairly straightforward tax. Is this really going to complicate things having this? I think it's more about the points that we're raising or about the potential consequences and just trying to think through what those are and I think we're all probably struggling a bit as well because we do all of the data to let us know that yet. So yeah it's hard to say. Yes, I mean I wonder Mr Mackintosh for you, I mean for an estate agent is it going to have to ask a lot more questions to a, or is that a solicitor that does that for the person? It's going to be the solicitor's job to… So it shouldn't complicate your members? Certainly for an agent side of things then no, it shouldn't, they're still going to market the property and the relevant valuation. Okay, thanks George. Okay, thank you. You're listening to me followed by Mark. I should maybe have noted that I did do a study for Scottish Government in 2009 on the baseline of the private rented sector in Scotland, I didn't know that anyway. But actually one of the things that did come up there was actually the lack of data. Thus it's really quite disappointing if we published that report for Scottish Government in 2009 that we're here now and actually the date is not particularly improved because actually what we've heard, what I've heard is quite a lot of anecdotal evidence but actually there's not much robustness there because I can ask, and actually I have done a number of private rented sector studies down in England as well, and actually even focus groups with landlords and what I haven't, what I missed was actually what you're describing as it seems to be the philanthropic landlords, because you're suggesting that actually the landlords are investing to give people housing whereas actually the landlords that I spoke to across the country were investing because it was a good rental yield? I want them to be investing to provide more housing, that's the whole point, and that's the whole thrust, we need more housing in Scotland so therefore we should encourage investment. But yes they're doing it as business people, they're doing it maybe not for a short term gain, so the yield might be negligible to be perfectly honest in some scenarios but they're looking at long term gain, of course they are, they're business people looking to do that, but what we're trying to encourage them to do is saying that Scotland's a place to do business, investing in properties is something that should be attractive and you could actually do, albeit there's regulation you need to follow, you're providing a service and that needs to be a good service but actually this is a business that's worth doing and what's the consequence of this long term, we provide housing for people and I think that's something that we should be encouraging here in Scotland. Actually can I ask you a further question Mr Blackwood, in your submission you suggested that the biggest impact of the proposals will be on vulnerable tenants as less money will be spent on improving stock? Well potentially if there's less money to go around there's less money to actually go in and improve those properties that people are investing in. So if they've gone and purchased a property at the end of the day they've got a finite pot of money to actually invest which includes capital cost taxation, all other forms of regulation and that continues, that's not just at the point of purchase. So you could actually inadvertently as a result of all of this and it's not just one thing having this effect, it's all regulation to get at, meaning that a landlord has less money, longer term, to invest in their properties and we don't want that either. We want them to be putting the money back into their properties. Can I ask, just as there's a comment from Shelter about large landlords actually criging out first time buyers, just because obviously they'll be able to access cheaper credit, what was your view on that? I can't really talk about larger investors to be honest, really more institutional investors, it's not my field, whether they can access better ranges of funding, I can't comment on to be honest, really. From an individual investor's perspective, which is my area, then to be honest it's not more attractive for them to access funding than it is a first time buyer, so... Is empty else got any comment on that about... Can I ask CIH, sorry, let's read. You had said in your submission on 1.4, in addition we feel that if the measure is to support the housing market in a meaningful way, the additional fund raise should be reinvested in the housing sector. Yes, and we're met by that at the affordable housing sector, so that we actually keep supporting and maintaining the aspirations that we all currently have to increase affordable housing supply. Now that doesn't mean always to reinvest it in local authorities or housing associations, it can be also going towards carrying on to improve the standards in the private rented sector, because primarily there are a great deal of smaller landlords in Scotland, and a member who talked about it in our submission, but you see this term accidental landlords, people inherit property, they rent it out, or two people move together and they don't sell the second property. Yes, those people are doing it as an investment, but it's also important that they get the help and support that they need to be the best landlords they can be, so we do feel very strongly that it is important that the money is reinvested, especially if there are potential for adverse effects on the parts of the market that are providing social housing. I think that John has pointed to it about the 4.1 of your submission. Just about local authorities and registered social landlords should not be subject to the charge if purchasing homes on the open market. You mentioned about mid-market rents, but I am aware that I am a councillor in Dundee, and I am a councillor in Dundee City Council, but housing in the open market, which is their renting out, is sort of affordable, social. There are different reasons that happen, so I don't know the specific example or why that has happened, but it may be even, for example, sometimes there are blocks where the local authorities or landlord may have some of those properties, but others are being sold right by. If they come up on the market and the price is obviously appropriate, they may choose to bring them back into local authority stock, because again, as I was saying earlier on, if it all stacks up financially, it is an easier thing to do than start from scratch and build something else. Also, it can create a more coherent community, and it makes more sense in terms of maintenance. That is just one example of that, but there are several reasons why local authorities might do that for different rationales. You will be looking for an exemption for registered social landlords. The notion has been raised that that would potentially hamper new-build development, because a lot of new-build development is predicated on advanced sale, and that would be in the buy-to-let market. Does anybody have any detail on the percentage of new-build properties that are purchased as buy-to-let? I am saying a lot of blank expressions. The reason that is a concern for me is that there appears to be a certainty being inferred from supposition in that, if we do not know what percentage of new-build properties are being sold as buy-to-let, it is very difficult to infer what the impact on new-build properties would be as a result of the surcharge, were it to have a behavioural impact. Would that be a fair assessment that might start with Mr Curran? The point that you have raised is one of timing and information and research that is required to properly consider. That is one of the issues in terms of the pace that we are going at in reviewing that. More research and more information are required and more analysis of the market is required. Obviously, from house builders' perspectives, are any of them saying to you that accessing the capital to develop is predicated upon the buy-to-let market being part of their advanced sales? Is it more in the social renter sector? It is definitely referring back to the SME-type organisation and the more entrepreneurial organisation that delivers the smaller-scale developments. That is key whether it is securing equity funding or bank funding. Banks still need a level of certainty in terms of how they are going to get their money back, and that is delivered by achieving a small number of presales on sites. Again, there is no evidence. I was waiting to say that. Presumably, there is no evidence that those presales could not be undertaken by people, for example, upscaling into a new property or indeed first-time buyers entering the market. There is no evidence to support either way, but the key thing is that, in terms of people trying to secure first-time buyer property, a developer will sell to either. There is no specific preference, but it is in terms of early sales in a development to enable development, whereby first-time buyers will not be able to have certainty on funding, so they will not be able to commit to a contractual position in terms of committing to development before you can actually start construction. In terms of the perspective of those developers, what kind of level are they talking about? What kind of percentage of advanced sales do most developments have to achieve in order to be able to access them? If you were looking at small-scale development, you would be looking at maybe 20 per cent. If you were looking at small-scale development, it would be 30 units. That is where roughly the level of six units come from on the exemptions for new-built properties. That would give you an indication. Some lenders may look for a higher proportion of forward purchase, depending on the type of property. If it is an apartment scheme, they may look for a higher percentage—it could be 40 per cent, 30 per cent—but generally, if you are achieving something in the region of 20, 25 per cent, it is enough to enable the development to commence. Mr Blackwood, you had mentioned the difficulty in attracting inward investment. The figure had been raised that, at the moment, around 2 per cent was the figure in terms of the capital Firth of Scotland that is invested in the buy-to-let. My question would be if that was the current situation at present, would maintaining the status quo really have that much of an impact in terms of attraction? If it had not already been attracted beyond a level of 2 per cent, is it really likely that that will shift quite dramatically where the surcharge will not be introduced? The point that we would like to make is that we want to see an increase in that investment both within Scotland and from out with Scotland as well. Two per cent is low, so we want that to be higher. Why do we want that? There is not enough housing for people, so we need to encourage that. That is across the board, across the whole PRS, for different areas in the PRS as well. Surely the flip of that is that if you have that increase in investment, the properties that that increase in investment is going to purchase are going to be those properties that could potentially be purchased by first-time buyers, are they not? It could happen. Again, we do not know exactly whether we are only working potentially proxy datasets to look at that. At the moment, we do not have evidence of that, so we do not have the surcharge at the moment. I know that it is early days, because it has only been recently introduced in other parts of the UK. Nevertheless, our first-time buyers have been pushed out of the market. Do we have evidence that house prices are going up? No, we do not. That is not the case of recent times here in Scotland. I think that that would be an indication that if prices go up, that means that that is an issue. Why is that an issue? Maybe there is competition or more competition in the marketplace. I do not believe that that is the case at the moment. That is not to say that that would not happen in the future. I appreciate that. However, we seem to be guessing what is going to happen and making or implementing a surcharge based on, again, supposition. In terms of the call for an exemption that has been raised—I think that it was SPF who called for the exemption—to perhaps be significantly lower than that, which has been introduced south of the border. Presumably, we have an idea of the number of entrepreneurs out there or the number of companies out there that are purchasing in bulk or purchasing a number of properties. What percentage of the market would be impacted if there were, say, a 15-property exemption similar to south of the border, against a six, as the SPF has recommended? I think that you have got to look at it in terms of institutional investment. That 30 billion and 2 per cent is the large-scale institutional investment in the UK. That is where the volume would come from. It is identifying that, at the moment, without that exemption in place, we would be uncompetitive in comparison to investing in the rest of the UK. However, when you look at the smaller new development sites, which I think is where you are thinking or your questioning is coming from, it is something that is hard to put a number on. Again, it is more a case of timing and analysis and being able to have time to produce proper stats on that type of thing. I guess that, from my perspective, the thing is that if I see somebody saying that we need to have an exemption set at, say, six properties, I assume, therefore, that there is some working behind that, some hard data that will say beyond that point that there is a market distortion. However, you seem to be suggesting that there could be a market distortion, but we are just not very sure. I think that what we are proposing is just really bringing it in line with what would be considered a commercial transaction. It is keeping it in line with existing legislation that is already in place. Just out of curiosity, why do you think that they have set at 15 for the stamp duty land tax? If you are saying beyond six is where you would get into the commercial realm, why have they set it so much higher in terms of stamp duty land tax? I think that it is just recognising the scale of the housing market in the rest of the UK in comparison to Scotland. We have to recognise that the market here is smaller, the scale of development is smaller, and that is just the reality because of what we are doing. Presumably, that is true in some locations, but not in others. For example, you could imagine 15 properties beyond being purchased in Edinburgh, Glasgow or Aberdeen, perhaps less so in Irvine or Arran, in one go, just to pick two examples from no reason whatsoever. I know. Would that be a fair? It will be different in different locations, but how would you produce something that reflected that? It would be very difficult. That has concluded questions from the committee, but I wanted to further questions to ask myself for an area that has not really been touched on. I will start with. As you said in my court, there is not enough housing for people, but surely in a lot of areas of Scotland there are enough houses for people. For example, Arran, which has just been mentioned, there are plenty of houses, but 42 per cent of them are second homes. People may visit them for a couple of weeks, maybe three or four weeks a year, then they might rent them out for three or four months, and then for seven or eight months, particularly in winter, they lie empty. The impact of that, of course, is that they are often bought by people obviously from outwith the island, and that applies to many places in Scotland. The company figures 50 per cent, for example, are second homes. The economy is weakened in winter because there is not much spending in the local shops, etc. Local indigenous islanders find it very difficult to compete for housing, etc. It is very difficult to attract teachers, NHS professionals, etc, to the island and other rural parts of Scotland, because they have to pay well over the odds for housing. Surely, in at least this area, in terms of second homes, the charge of 3 per cent will have a positive impact, in that it will allow at least some respite for people who want to buy their own home, as opposed to having to compete with second home owners. With what you have said, our organisations are representing private landlords who are in the business of buying properties to provide as principal homes for people to live in. I am not here to advocate for people who wish to buy second homes and have them as holiday homes, as you suggest. Perhaps a distinction should be drawn between the two, and there is not in legislation at the moment from council tax right the way through, and I think that that is wrong. It should be the nature in which the property is used, as opposed to the type of ownership. The point that I was trying to make effectively was that you are not keen on this legislation progressing, but there are positive aspects to it. That is one area where, for example, I think that there would be a positive aspect. Mr Mackintosh, what is the view of the national association of the stage in terms of second homes in relation to the legislation? Do you have a view on that? Again, it is all depending on the circumstances and how you are justifying a second home, as we have already said to the second homes that are accidental, people who have been pushed into them, or the second home that people are purchasing with or on behalf of their children. That is the only reason to get them on to the housing ladder, as far as for the majority of the second homes or for those instances, and to get first-time buyers on. I think that it is constant that we are always saying that the lending criteria must improve and that access to finance must be. Back to Mr Blackwood on another issue, which is release under section 4 of your submission, you have pointed out a number of areas in which you would like there to be some reliefs applied in terms of legislation. I am just wondering which of those should be prioritised. We thought that, if we would just put down a few, at least you would pick one or two of them that might be of use. We had a bit of a brainstorming session on that. To be honest, there is probably no order therein. I think that there is perhaps no accident that has happened that way, to be honest. There was this issue about joint purchases, where one of the parties is a first-time buyer. We have discussed it where appearance is by the property, but it is not in their name for a number of reasons. Often it is, so they are joint owners. Again, you could say that it is a first-time purchase for that particular purchase as part of that transaction. That is something that could be taken into account. One of the biggest concerns that we have touched upon briefly is how it is administered. How can we make sure that there are no loopholes through that? Does the job that it is intended to do, which is to help first-time purchasers? That is our concern. We feel that we can justify so many exemptions, but is it really going to help the people that the policy is intended to do? I appreciate that response. Gavin, do you want to come in here? I just want to come back to an issue that John Mason mentioned, which is worth exploring a bit more. It is the idea of an accidental second homeowner. You buy on your home, your current home is not selling, and you have to pay this money up front. I think that Mr Mason is correct in saying that that is much cleaner and simpler. In terms of administratively, that is clearly the best solution. In terms of putting the money up front, there is a challenge to a lot of potential homeowners there. What impact will that have on market activity? Some people are naturally cautious. Personally, I would probably then be in a position where I would only ever sell before I ever considered buying the new home. There must be lots of people who are naturally cautious. Would that not just lead potentially to a slowdown in activity by itself? If so, what sort of level of slowdown? Mr Black, you were making eye contact, but it does not have to be you that kicks off. No, I think that it is a potential unintended consequence of that. We do not want the market to slow down. It is important that it is flexible and that it meets market conditions when they change. I think that perhaps there is a way around that. I am not an expert in that field, but if you are a buy-to-let investor, if you are going to invest in new property, one thing that is checked as part of money laundering processes is where is the money coming from to be able to do that. It would be evident at the convene stage that you are intending to sell a property and that is the intention or whether it is on savings or you have inherited that money. From an administrative point of view, it might not be that difficult, but there are colleagues in other fields that are far better at answering that question than me. That might alleviate some of the fears that people have about selling their own home having to do that first before buying something else. I think that that would have a negative consequence in the marketplace without a question. I want to explore with the Government who we will see later on. Thank you very much for that, Gavin. I would like to thank our witnesses for answering their questions. Did they realise that this has been a very truncated processor? I do appreciate the fact that you have come in at fairly short notice and the fairly substantial contributions that you have all made. I would also like to thank colleagues for their questions. I am now going to call a recess to a change of witnesses and allow members a natural break. We will reconvene it 10 past 10. I am now going to reconvene the session. We will continue our consideration of the Land Billings and Resaction Tax Bill by taking evidence from our second panel of witnesses this morning. I therefore like to welcome to the meeting Mr John Lennon Gorn of the Royal Institute of Chartered Surveys, Ms Isabel Dunverno of the Law Society of Scotland, to Joyce of KPMG and Susanna Simpson of Price Waterhouse Cooper. Welcome to the committee this morning. We obviously have your submissions and therefore we will go straight to questions. The first question that I will be asking will be to Mr Gordon. Mr Gordon, what you have said in your submission paragraph 3 is that it was prudent of the Cabinet Secretary for Finance, Constitution and Economy to match the UK levy, as the Scottish housing market could have seen an influx of bi-to-let investors from England and Wales if a similar regime is not introduced. You may have heard in some of the evidence from this morning a number of our witnesses take the view that that is exactly what they did want to happen, an influx of additional investors, given the fact that only 2 per cent of investment in bi-to-let is in Scotland during institutional investment. I wonder if you can expand on why you have the views that you do. Yes, the RICS has a duty on its royal charter to look out for the interests of everybody, but the members of my PRS forum are mainly letting agents who work in the sector looking after investors and landlords, but obviously looking after tenants as well. That is part of our process. I have some personal views on the sector, but also the RICS views to represent as a whole. The RICS view is that exactly as I stated there. If you follow Twitter or property groups, there was some chatter around that after the chancellor announced the change of people thinking about investing in Scotland. I have anecdotal evidence of clients who were looking at that. Clients from England who have already invested here but have investments down south, perhaps thinking about the next one being here instead. On your concern about that additional investment, would it push up house prices and make it difficult for first-time buyers? Personally, the evidence is not that clear on it, but there is the risk there. The risk that you have to copy the policy and then explore it further as it develops, because the risk is quite high. That was the key reason that was stated by the finance secretary. You do not think that the finance secretary could, for example, have waited a year to see how things developed and then perhaps brought in this legislation, if necessary? There is probably a range of views in the forum on that. Some people in my forum feel that we could attract more inward investment and it would not affect the market at all. The balance of opinion was felt in the RICS policy that it was safer to copy the policy now. Isabel, I do not think that you would agree with that, because you have said in terms of the general comments in the law society submission that the timescale and manner in which the proposal is being considered is not conducive to the formulation of good quality robust tax legislation. I think that it goes without saying that if you have to do something in a hurry, there is a risk of making mistakes in doing it or at least not addressing all the issues that need to be addressed. It is a very truncated timescale, but we are making that point with a view to the future. I do not think that this is going to be the only time that Scotland will want to introduce a measure quickly because one has been introduced in the UK. Perhaps we need to think a little about the process that we have for doing this, because it is obviously quite an effort or it is going to be quite an effort to get the legislation through in the timescale. One of the things that was said by one of our previous witnesses, Mr Blackwood, was that it is important to ensure that such legislation has no loopholes. I was intrigued by your submission, because when it comes to reliefs under section 4, you get myriad suggestions for reliefs, such to the extent that I am looking at the £17 to £29 million that the Scottish Government hopes that it will get from this, declining as I turn them page by page. When it comes to section 5, the potential for tax avoidance under the supplement and how that should be addressed, you have put no comment on that, which I was quite surprised about. The Scottish GAR that we already have will be sufficient to address any avoidance issues. Our larger concern is trying to look at some of the situations where the legislation in its current form may have quite capricious results. Circumstances might arise where it really does not seem fair that the supplement should have to be paid. It is trying to deal with those that are probably our main concern and the concern of our members. One of those is the inadvertent ending up with two houses because something has gone wrong with your transactions and they have not managed to settle on the same day, which happens quite a lot. I think that that point was raised in the earlier evidence session. We think that there ought to be a grace period of, we are suggesting, 30 days where if one of your transactions does not complete when you thought it was going to, you do not have to pay the 3% upfront, even though you have two houses for a short period of time. If you have not sold by the end of the 30 days, you have to amend the return and pay it. We think that a 30-day period would be sufficient to deal with quite a number of cases where people have not intended to have two houses, but there has just been a hiccup somewhere along the line. I will ask you the same question that I asked Mr Blackwood. In terms of the reliefs that you have listed, what would you prioritise? You have mentioned one, would that be your number one? I think that that one is quite important because from our member's point of view, if we do not have something like that, we are going to have to tell people that you need to budget, or some solicitors might take the view that they will have to say to clients, that you need to budget for paying this 3% because if anything goes wrong and you do not complete your purchase and sale on the same day, you are going to have to pay it. I think that that is quite an important one. Joe Joyce, you have taken the opposite view from the Har-I-C-S in terms of investment. You have said that investors in the private rental sector are a key driver in ensuring that new residential properties are constructed whether by way of direct investment into new developments or ensuring that house-builders are confident that there will be a buoyant market for their product. I am just wondering if you can give us some more information on that. I think that a lot of our information on this has been anecdotal from our clients, obviously. We have been gathering information in response to both this and the introduction of the surcharge in the UK, so a lot of our clients are nationally based. From particularly the small and medium market, they do look to sell a lot of their properties off-plan in order to forward fund that development or secure bank funding. They often get people buying one or two or three apartments in a block, which will obviously be at least two of those for buy-to-let investments. Without that, they are going to struggle to get funding going forward. We have not got hard data on that, so this is just what our clients have been telling us. Susanna Simpson, you have said in your submission that you seem concerned that unless legislation is brought in, there will be distortions in terms of the UK market. Distortions, some of the previous witnesses might say, would mean Scotland having a competitive advantage, given that only 2 per cent of inward investment in terms of buy-to-let is directed at Scotland. Would it not actually give Scotland that competitive advantage? Why do you have such concerns about that? Similar to Joe's views, I suppose, in that canvassing our clients any kind of uncertainty or inconsistency between the rest of the UK and Scotland causes additional complexity. That is our main driver, or certainly coming out of our client basis, to keep the rules as consistent and clear and simple as possible. Taking up Isabel's point from the Law Society earlier on, however, that we should not focus on that at the risk of bringing legislation through too quickly and without proper consideration, there may be benefits to be gained from delaying it and seeing how things settle south of the border. You have also raised some concerns in terms of the scope of charge on the climate. Do you suppose that there exists a main resonance? You talk about inconsistency, the treatment of taxpayers in similar positions, for example, where someone owns a buy-to-let property and is moving out of rented accommodation, which is the main reasons, into their first home. They will pay the extra 3 per cent, whereas a buy-to-let investor already owns their home and is replacing it with not. There are a number of anomalies that will come through. As Isabel said, there are people who are in that reluctant landlord position and should be worried about it. We should also be concerned about that. However, there are two people who are buying a buy-to-let, but one has had an existing main resonance and is replacing it. It seems inequitable that they would be paying the additional charge, whereas the other who is buying their first main resonance would be caught within the charge. You have said that, in terms of exemptions, you agree with the policy of providing an exemption from the additional 3 per cent of investors who will contribute to the growth of housing stock. You feel that an acquisition by an investor of six or more residential properties should be catered for. However, in terms of a portfolio, you are saying that an acquisition by an investor of one or more residential properties with that investor will loan at least 15 properties following a transaction. The concern behind that goes back to the point that was made by Ricks earlier on, is that the rules should not prejudice the private rental sector more generally. Therefore, although it is difficult for Parliament, I guess to discriminate in particular into EU law against different types of investor. We have looked at whether there is a possibility of introducing exemptions. Those were a couple of the ideas that we have come up with. Perhaps an investor who is buying more than six in one transaction would suggest a more widely held portfolio, so going against the avoidance that the legislation is trying to target or equally where they already have a number of residential properties. The acquisition takes them above the 15 residential property threshold, similar to what has been suggested down south. Equally, it is similar to the non-residence capital gains charge, where there is an exclusion for acquirers who are diversely held. We are moving away from that suggestion where a husband and wife buys and then buys their second through a company to work their way around the rules. Suggestions are really as to how that might be distinguished and keep the PRS sector going. Thank you for that. Mr Gordon, you were going to comment, and I was just about to ask you a question on this particular area anyway, but carry on. It was just in relation to the original question. Although the RSAS thinks that there is a need to be careful and consider matching the stamp duty changes because of the risk, that does not mean that we think or I think that the LBT overall or LBT is an additional home supplement is a good idea. LBTDs are not progressive, regardless of how you frame it. The changes were welcome in terms of how LBT was framed in terms of the way the thresholds move and the non-slab structure, but overall it is a tax that does not target wealth or income. It targets people who have happened to own an asset or have the ability to buy an asset. Sometimes real-life examples are quite good, so my personal example is that I am 45, I have virtually no pension, I have a large mortgage, I have a relatively modest family home in Portobello, but if I need to move to a bigger home to accommodate my family, I would pay a much higher price for a similar but larger house in the same area in Portobello. I do not have the stamp duty or LBT money available in order to do that. I have to do that in the next couple of years, let alone get the extra deposit that I would require. I am not a wealthy person with a huge income, but somebody who is a wealthy person with a huge income can buy a similar size house, perhaps in Fife and pay the same—by a bigger house in somewhere like Fife or the Highlands, and they would pay the same tax as me. In that regard, it is not a progressive tax, and there are unintended consequences in terms of the affordability element in all sectors in relation to the additional home supplement. Specific examples are a lot of investors, particularly in Edinburgh. We have a number of clients who buy or trade in HMO-licensed properties. Sometimes they have emergency lighting and fire escapes or sprinkler systems, but they are not particularly suitable for individuals to own, and living as their home is suitable for multiple occupancy. They do not even have a lounge sometimes. An investor buying that property under the new LPTT structure from last year will pay a fairly high or penal stamp duty rate for a property of around £300,000 or £400,000, but if they were to buy instead three or four properties at a lower value, they would pay no stamp duty on those under the old structure. Under the new structure, they would become even more incentivised to look towards buying smaller properties, which are exactly the type of properties that first-time buyers are trying to buy. Therefore, you may well have a tenor constituency of pushing people to buy investments in the lower end of the market rather than the upper end of the market. That is interesting. Parger 17 said that more can be done to entice institutional investors to build purpose-built accommodation for rent, not only by providing a stable policy in the legislative environment but by creating a financial framework that would encourage them to do so. I wonder if you can tell us a wee bit more about the kind of financial framework that you are thinking about. As well as representing the RICS here, I represent the RICS on a number of groups, so the joint housing policy delivery group that I am going to be joining next month, but I am also on the PRS working party that supports the PRS champion. The PRS champion for those who do not know is funded by the Scottish Government and employed by Homes for Scotland, specifically targeted with encouraging that type of investment in build-to-rent homes. A number of those developments are on areas of land that would not be otherwise developed for homes. They bring in significant amounts of investment from institutional investment, so high-quality potential landlords such as Standard Life, Aberdeen Asset Management, those types of companies that have reputations to protect. Those types of landlords entering the market are extremely important. The PRS champion is working with the working party that I am on to deliver a set of recommendations for the Scottish Government. The cabinet secretary is responsible for that. It is amenable towards most of the recommendations within that and is already implementing symptoms such as planning recommendations or guidance to councils. If you look at the Homes for Scotland submission, which includes comment from the PRS champion, there are very specific reasons and explanations for why an exemption for that type of investment is important. Only a small percentage of the investment in the UK in that sector is coming to Scotland at the moment and some of that is due to the risk around the uncertainty over the changes in regulation such as the new private tenancy bill. There is a feeling that perhaps some of it is just about once it is all in place and finalised, they will make the decision that it might be positive, but introducing a tax change at this stage to disincentivise the investment will produce further uncertainty and recalculations that may not then produce investments. The Government's own strategy on PRS from 2013 has, since 2007, done a lot to improve the safety and security of the sectors. We have a repairing standard where everything is mandatory in terms of electrical and gas safety fire alarms, whereas throughout the rest of the UK, the majority of it is guidance only, so it is a very safe place for tenants to live. They are creating the right environment to create a better sector, but if nobody is buying new houses to put into the sector, the majority of homes are going to continue to be old existing stock, which is perhaps in poorer repair than some of the new builds. One of the key recommendations in my own submission, which is to accept all new builds from the additional homes supplement. I will open out the session to colleagues around the table who are all champion at the bit. First one is Gavin to be followed by Jeane. First question to Isabel Dunverno from the loss of sign to paper. You talked about this grace period of 30 days. In my view, a grace period is far better than no grace period. Do you not think that 30 days is a bit tight? I fear that that puts a huge amount of pressure on the seller who may then be tempted and vulnerable to lower offers late in the day in order to avoid the tax. Is 30 days fair in your view or is that just a starting point? That was just a starting point. Obviously, the problem with the best thing would be that any purchase of something that was your main residence did not attract the supplement. That would be the best position, but it is quite difficult to implement that because if someone already has a house, they are going to sell it and so on and so on. We were trying to strike an approach that would not be too problematic and would not let too many things slip through. However, 30 days is quite tight. Three months would be better. Some periods like that would be better because so many things can and go wrong. People are on quite tight budgets these days, and another 3 per cent is quite a lot to have to play into the equation from the beginning. I think that you are right that 30 days is too tight and that a longer period would be better. You are saying that people are finding it financially tight these days. From your experience as a property lawyer and with your clients and the market as a whole, if there was no change to the bill as is drafted in regard to this area, would that have a detrimental market impact? Would people just hold back and only ever purchase once they have already sold? Is it possible to explain what you think would happen? It is difficult to say exactly what would happen. From the point of view of our members, they would need to make sure that people appreciated the danger of this 3 per cent emerging when everybody thinks that when they are going through these transactions that it is all going to work out. Often, for one reason or another, it just does not. You need to be in the position of being able to fund that if there is not some sort of grace period. The 30 days also aligns with the time limit for putting in. It is really just trying to have something that oils the wheels. You talked about when the UK measure would first announce you saw on social media various tweets saying that people were going to start investing in Scotland or so on. In terms of the marketplaces, as you have seen it since the Scottish announcement was made whenever that was 12 mid-December, have you seen a spike in activity in terms of buy-to-let properties being purchased between then and now so that they avoid the April cut-off? My company looks after buy-to-let properties. Unfortunately for me and our company, we have not seen a massive spike in that. However, John Gell, who used to be the chair of my PRS forum in the RICS, runs a letting agency in Vernes, and he has seen a significant spike in people trying to buy-to-let. We have some anecdotal evidence that we only sell properties at the moment, which have been rented out and they want to sell them on the market. We have a few properties available on the market and off-market, and we have seen a little spike in people buying a second home rather than buying-to-let investors for those. There is a similar interest in investors, but are we spiking people looking for a second home? Not necessarily at a holiday like this, but it is people who live in London and their family is all here, or they have children who have their grandchildren living in Edinburgh, so they need somewhere to live when they come up with that type of thing. From your company, there has not been a spike in buy-to-let, but there has been an increase in interest in second homes. However, from colleagues, at least one of them has said to you in Vernes that they have personally seen a spike. Is that fair? In terms of your submission, you were concerned about discouraging smaller landlords. Can you expand on that a bit? There are a lot of things that people think about landlords that are not true. There are only a small number of landlords that are not trying to look after the tenants, and there are only a small number of landlords who are trying to push rents to the extreme. Like any civil or criminal things, legislation is there to catch the people at that extreme end. You have to have things that cover that, but rents in Scotland are not rising at the rates that people talk about. What is happening is that there is a large increase every year in the number of people having to rent in the sector, and there is no supply to meet that demand. For that reason, rents are rising for advertised properties. If we do an annual review of what the rents are and compail into the market for existing properties where tenants have been there, we have tenants who have been there for five years or more. When we ask landlords if they want to increase the rent incrementally on the tenants who have been there for a long time, because we know that the tenants pay the rent and that we know that they look after the property at that stage, we did an exercise. Last year, we emailed 100 landlords who the rent had changed significantly in those areas, and not a single one of them wanted to increase the rent by the incremental amount that we suggested that they should. There is a big disparity and a lack of data about what actually happens in this market, and it is affecting all the different decisions that policy makers are considering, including that one. In terms of exemptions, the convener asked a couple of questions about them, but one of the exemptions that you mentioned is exempt new build if owner occupiers fail to buy after a period of time. Now, we had a similar suggestion earlier on the period of time that was six months in that suggestion. Do you have a view on the period of time that you think would be appropriate? No, I do not. That came from within the forum. That was not one of my own comments. It is difficult to see how, particularly with the sort of payment when you are trying to sell your home and you cannot sell it, so many people are not going to have either the money to pay the stamp duty in the first place on one house, let alone two houses, or the additional charges. It is hard enough to find a deposit at whatever level the housing market you are at these days because of the availability of mortgages. It is very difficult to get a mortgage that has a low deposit, where you also pay a decent interest rate. One of the things that was asked by Mr Kurtz was about the interest rates that battle at landlords pay. It is fairly comparable, but sometimes battle at landlords, when they are remortgaging another property, they have a bigger deposit and they therefore can get a better rate for that reason rather than better rates overall in the market. There are other consequences that I wanted to mention. One of the difficulties with the speed of that change is that every time I read somebody else's submission or think again about what I am going to talk about, there are more potential issues that pop up. This is not just a minor adjustment to LBTT, but a new tax that will affect the market in unknown ways. If we have a number of landlords, we set up in 2008, so a number of our landlords are probably a large majority of our first 100 landlords that we got in 2008-2009, where people who were unable to sell their home when they moved in with their partner or moved to a family home as they were getting married or having children, so they would rent out their property. The situation allowed them that they were lucky enough to be able to afford to move, but the negative equity, if they had to sell their property, would wipe out all of their savings. That will continue to be the case, because we still have new landlords coming to us who are unable to sell their own home in an area where the market has not improved again, places such as Clermiston or Ex-Council areas. They have to rent out their properties so that they can buy a family home in an area where they either need to move to for a bigger home or to work. They will have to pay the stamp duty on the higher vow property, which is fairly penal. Okay, that is helpful. Thank you. If I can move on to Joe Joyce in the KPMG paper, the main thrust that I took from your paper is that your clients were concerned that this legislation could be a deterrent to the development of new homes. Can you expand on how it would be a deterrent? I think that, as I said earlier, a lot of this is anecdotal and what we have been hearing from our clients, but it is the extent to which there are two sides to this. There are small and medium businesses where individuals buy one or two or three properties off plan. That guaranteed income going forward really helps them to secure the financing to go through the development, and then there are the large-scale institutional investors, which forward fund big developments. While there is an exemption proposed for large-scale investors for the SDLT surcharge, we do not know any details around if there is going to be a similar exemption for LBTT. There are two parts to this, so there is the additional charge, but if there is no similar exemption north of the border, that will make south of the border a more attractive place to invest. It is vital to the way that the new surcharge is introduced, that there is clarity around any exemption and how it will be applied to provide certainty for taxpayers, but also to provide certainty for those developers who really look for that forward funding. On the issue of the accidental second homeowner, those who are not able to sell the main residents after they have bought, you talk about an up-front relief for that. Can you expand on the KPMG on that issue? How do you think that we could tackle it? There are a couple of ways to tackle it. Isabel and Susanna's paper also cover that, rather than having the end-of-the-day approach to when the 3 per cent rule applies, having a main purpose test. I am buying this next residential property to live in as my main residence, and if so, we get a relief for that 3 per cent surcharge, irrespective of whether we have been able to sell our previous residents. Within 18 months, we would say that it is an 18-month or a three-year period. We think that 18 months is probably all right the way the market is at the moment, but, obviously, the property market is quite cyclical, so it might be the need to expand that period to three years, then any relief claim could then be clawed back. Given that your claim in relief, all the information would be on an LBTT return, so Revenue Scotland would very easily be able to pick up whether you had made that amendment that you needed or whether you needed to pay that additional 3 per cent. Would we need some kind of guidance or regulations in there? I think that we do need something like that, otherwise I am worried about the state of the market. If people wanted to get round it, they could put their house on the market at an unreasonable level. I could just refuse to accept any offers on the property because I do not like the look of the person. Presumably, we would need some regulations in there to make it absolutely watertight as well. Is that—? Yes, I think that that is fair, but, as Isabel said, you have the Scottish Gas. If you are doing something purely for the purposes of avoiding tax, you are going to be caught. It is quite a strict and a strong measure. In the majority of instances, people need to sell their previous home in order to move forward. If people are buying second homes, it is quite obvious that it is not their main residence. I do get that there are grey areas there. That is something that is very hard to legislate without reams and pages and pages. It definitely is not what you want. That is why guidance would be very helpful. We do have precedents for that in other taxes, such as principal private residence relief for CGT and things like that, so that we could draw on that. If I will ask the PwC paper to Susanna's paper, you have been asked about the investors contributing to growth already, so I will skip that one. If we stick to the accidental second home issue, you gave us a specific proposal in your paper about how PwC thinks it could be tackled for the record. Could you just expand on that? Going back to the time period, I know that we have suggested three years and going back to Isabel and Jo's suggestion that our preference is that, in fact, any acquisition of an only or main residence would be excluded from the tax. I accept that that will allow for an incidence of people buying a main residence and living in it, selling on and doing that multiple times. I think that our view and the view of our clients is that the practical inconvenience of doing that means that it is going to be relatively few and far between. You have the back-up of the gar for sort of intentional avoidance. Our suggestion around if we did need to go with pay the tax in an 18-month period is that, rather than having to lodge the tax, there was an ability to submit a request for a deferral application, which could be then revisited within three years. In our view, that means that there has to be a positive application to Revenue Scotland, so Revenue Scotland could then monitor it and would be able to pick up if there was not a further return within the three-year period of 18 months. Last question for you. You seem to have submitted a fairly comprehensive submission to the SDLT consultation that you submitted alongside your submission to us. Is it your view that we, as a committee or the Scottish Government as a whole, ought to be lazing pretty closely with that consultation to try to make sure that there are not unintended consequences on either side of the border? The intention, as I understand it, from the release from HMRC and also from Revenue Scotland is that the rules promote first-time buyers. The two intentions are aligned there. The timing of the introduction of the tax is very similar. Our clients, as I have said, have any inconsistency between the rest of the UK and Scotland that increases complexity and uncertainty. That is a good idea to liaise between the two, framing a similar set of rules. I certainly think that, where exemptions are introduced in the rest of the UK, they should also be mirrored north of the border, because we end up otherwise with the distortion in the markets between the two, and that can never be good. I am just following on from the point that Gavin Brown raised and your explanation for that. I am interested in the fact that all your recommendations are that there should be no difference, that people should understand the market, that they should understand the tax, and that it should be clear and that there is no difference. There is a difference. There is a huge difference between the markets. We heard from our earlier evidence that we attract far less inward investment, whether that is a good thing or not. That is not the case, but the point is that it is different. It is a different market. House prices have been dramatically different over the years, and we do not step into this situation right now. Why should it mean that, in time, there will be differences? Of course, there will be. Why are you not recognising of any of the circumstances when you are so determined that the rest of the UK and Scotland should maintain similarity with those tax? In our view and the view of our clients, the paramount point here is simplicity. Most of our clients will trade both north and south of the border, and those can include SMEs, as well as large, diversely held property investors. There may well be differences north and south of the border. We have not carried out any research to understand that. That is not what I am here to advise of. Interestingly, the difference in the threshold for LBTT up here and for SDLT in the rest of the UK with £145,000 up here means that the 3% will impose a larger burden arguably in Scotland than it would in the rest of the UK, because the rates hike in terms of lower thresholds as you work up through the ban. The 3% becomes a much heavier burden north of the border, so that is something that the Parliament may want to take into account when taking a decision on that. There is the big issue of simplicity for our clients. Given that LBTT is a very complex tax, as is SDLT, and that is set out in the RICS paper, it is another incredibly complex tax. It is another tax, and it is incredibly difficult for taxpayers to manage all those changes. That is one part of it. The other part is that the policy objectives of both Governments do seem closely aligned on that. I appreciate that there are very different markets, but even in the rest of the UK we have incredibly different markets. London and the South East bear no resemblance to the north-west, and we have very different investor types and very different purchasers. That is why this piece of legislation is so complex. The UK Government and the Scottish Government need to make sure that any legislation that is introduced is robust and fit for purpose. That does mean that there is a divergence in Scotland, because that is the best way of achieving the policy objective. That is fair enough, as long as both Governments are thinking that through and the legislation is introduced on a sound basis. I am sorry that there are already some quite significant differences here, because the treatment of mixed purchasers in the draft legislation that we have appears to be different from the approach that is going to be taken down south. If you are buying a residential property with a commercial property—the shot with the flat above it—it appears that the LBTT legislation that we have would apply the 3 per cent to that flat, whereas the SDLT legislation from the consultation does not appear that that is going to be the case. It is the same with purchases of six or more dwellings that are treated as commercial or taxed at the commercial rates. It looks as though the SDLT surcharge will not apply to those, whereas the LBTT will. I think that we are already quite different from the other differences that we have in LBTT. I am not sure that it would be terribly easy to make the two systems aligned totally. We need to make sure that there is very clear guidance about LBTT so that taxpayers are aware of how things work and the fact that they may be different. Just a quick addition to that is that my background in land economics, rather than the RICS specifically, is that the difficulty of whether to match or not match this policy introduced by the UK Government is going to be something that the Scottish Parliament is going to face multiple times. The devolution of a small number of taxes leaves little flexibility for altering what you do with the taxation system here. The larger partner in the group, which is deciding on tax for England and Wales, has 50 million people there and 5 million people here. Those 50 million people are all potential investors in the market here, and that type of competition here, if people really did start, is far too big a risk to ignore. The same is going to apply to decisions over income tax and everything else. When you only have a small number of taxes to make decisions on, you may copy those changes in the UK, or you may introduce tax changes here, not because it is a good idea to change income tax or LBTT rates, but because you have no other options in terms of other taxes to alter or introduce. I am sure that our Deputy First Minister will be listening to your comments about that. I wanted to move on to your paper on rural impact, particularly on the exemptions that you are recommending. At paragraph 9 on your paper, you acknowledged that the decline in population insufficient of the lack of housing in rural areas, but at paragraph 17, on your proposed exemptions, you recommended exemptions for holiday homes. Across the area that I represent, which is rural and highlands and islands, there are many communities in which as many as 40, 50 and in some cases 60 per cent of homes are holiday homes, which bring huge problems in those communities. If you were to ask a lot of people in those communities, they would probably say that they would like people to pay a higher tax and have no exemption on holiday homes, because it is currently one of the most significant problems that we have to deal with. That is why oral evidence is good, because the RSCS proposal to exclude purpose-built holiday homes is really talking about things like holiday cabins. There are shalys that are built next to and on holiday parks and things like that. The purpose of the exemption is specifically for purpose-built homes for rent, and the same applies to purpose-built student accommodation, where it is not suitable for individuals to own them in their own right. If you go to Avimore or anywhere else in the highlands, there are purpose-built villages for holidays. People stay there for a couple of weeks and rent them out to other people at those times where they are not there. Those are not suitable homes for people to live in full-time. I hear what you are saying, but on the other hand why would we single that? The tourism industry, which is what you have specifically cited to incentivise people to make investments in tourism and advance tourism, but why would we single out this particular aspect of tourism for tax relief when no other aspect of tourism would be singled out? I want to go skiing this weekend if it snows a lot this week and I want to go skiing at the weekend, and I try to book a shale, then it will be very difficult to do that. Anyone flying from London to Inverness to try to do that as well will find it difficult to book accommodation and come here as a tourist. Specific purpose-built holiday accommodation is not the same as homes for local residents to live in. I think that we would have to disagree about that statement, but to be continued, thank you very much. I want to look at some of the assumptions that have been made in terms of transactions and yield if that is possible. The Scottish Government estimates the number of transactions to be 8,500 to 12,500. I would be keen to get a view given your experience as to whether you think that is a reasonable assumption. Without any unintended consequences, it estimates the yield to be between £45 million and £70 million, but once it applies a behavioural response, that drops to £17 million to £29 million. Is that in your view given your experience reasonable assumptions to make? I am afraid that I cannot comment on that because we have not carried out the research and do not have enough evidence to provide on that. Our response would be to say that that is not the area that we have commented on. I am striking out. I will always try. I believe that the income from LBTT since the change to that has not met targets or the budget that was planned. One of those reasons comes from unintended consequences where they are trying to make property more affordable at the bottom level by exempting a large proportion of the purchases from LBTT altogether. It relates back to the example that I gave to myself. If I do not move into a slightly bigger house, my house is not available for the next person to move up the ladder, nor will the first person at the bottom move up from their one bedroom flat be able to afford to buy my family home when they start a family, and therefore that home is unavailable to the person at the bottom. There are less transactions at the top, because a number of people who live in the high-value properties that are subject to the penal rates at the top end are not there because they are wealthy or because they have high incomes or because they have grown within a rising property market. They may well have an asset that is worth a lot to them, but if they cannot move on to their next one because of the new penal rates, it does not free up the next properties down the line for eventually the first-time buyers, and that is the lack of supply at the moment. Property prices in Edinburgh are rising extremely fast at the moment and in other hotspots around Scotland, perhaps not in Aberdeen. The problem is not the shortage of supply of homes, it is the shortage of the right type of homes in the right location at the right price. There is an assumption that the yield is going to rise in the next four years by 87 per cent. Given your experience, I know that you have not looked in detail at the maths, but that size of rise is a reasonable thing to assume. I think that the yield from LBTT is probably appropriate to point out that there is a difference between the yield for commercial and residential, is it not? The effect of the residential rates has certainly had an impact. A lot of activity before LBTT was introduced, which, therefore, brings things out of the equation. There will not be the same timescale necessarily for that to happen in relation to this supplement that one would not have thought of. However, I think that we are at the early days of forecasting tax revenues, are we not? I wish for thinking in reality, but we can only wait and see. Can I touch on the likely effects of forestalling? Mr Gordon was asked about this earlier. Is there evidence that you are all seeing of a rush to buy or sell properties? Is it more down to changes to the UK income tax regime that is coming in, or is it down to the supplement? I am keen to get your viewers to the balance of what you think is the causal effect. I agree with Ricks and that we have not seen a huge evidence of that happening so far, however, it will inevitably happen where there is a date fixed. I expect to see some increase in transactional activity before April if it proceeds as planned. That should be taken into account in budget forecasts, not a lot more to add than that. From my perspective, we do not deal with the individual transactions. The majority of queries I have been getting both north and south of the border have been from people who are clients but are ringing up personally about buying second homes, investing with parents, investing with children. Given the uncertainty around the tax, the advice can only be if you are going to do it before 1 April, because we do not know how this is all going to work yet. There has not been a huge amount of information about the proposed LBTT supplement yet in the public domain, so people have a lot of queries about it. I suspect that in the next couple of weeks it will become more clear to people how it works and that may well trigger greater activity in people trying to buy things before the date. The timescale for starting from scratch and completing transactions may mean that it is just not possible, but there certainly will be some people trying to do that. 80 per cent of our new landlords come from people who are moving out of their home, but they are not purchasing a home to rent it out. That is one of the major failings in the discussions around the new tax, which is a misunderstanding of how the market creates and develops. Those are just normal people and they often keep it because they have a pension. That is then going to be their pension. I only have minor anecdotal evidence. I have a couple of clients who are getting rid of all three properties rather than just one because of the changes to the mortgage tax relief that is coming in. The majority of our landlords are completely unaware of the majority of legislation changes—smoke alarms, electrical safety, the new tenancy regime that is going to give security of tenancy tenants. We write blogs, send it to them, people do not click on them, they open the email but do not click on the links. They are unaware of it. They rely on us to look after everything for them and they get on with their daily lives because they are just normal working people. The majority of them are not wealthy investors. Can I just pursue something with Ms Simpson? The KPMG suggested that, because of forestalling, people might end up overextending themselves in the rush to buy. Your suggestion is that lead-in time should be extended. Surely that increases the chances of forestalling, and if you were to extend the lead-in time by how much? Extending the lead-in time absolutely would increase the chance of forestalling. It does give the Scottish property sector the ability to see how this charge hits and lands south of the border. Again, it will go against the overarching view of ours and our clients that certainty north and south should be promoted, whatever happens. I added to my comments earlier on that, with the upcoming removal of interest relief on mortgage payments, which takes effect and does not devolve for the whole of the UK, as of April 17, that could cause combined with this additional charge more forestalling than perhaps has happened in relation to other tax changes in recent years. It might be the combination of the two that is worth taking into account. Before I go on to the main point, I wanted to ask just a minute to follow up on that last point. You have mentioned that there have been a number of words coming in here, like consistency, distortion, simplicity, complexity, all of those things. I mean, it seems to me that some of them do their intention with each other, because you seem to, correct me if I'm wrong, but you seem to be favouring a consistency across the UK, which I assume is because that's where your clients represent. Whereas if we actually had a simpler system in Scotland, as we've tried to with LBTT, which might advantage first-time buyers and smaller buy-to-let, that would be less important to you. Is that right because of your client base? Not particularly, because our client base extends to cover SMEs and smaller buyers and investors in properties as well. I think that you're right in that it's a balance to be struck between that simplicity and pushing on and helping the PRS sector in Scotland. Just as the point has been made earlier, there are differences between the two markets. We simply haven't carried out the research to understand that in enough detail. In the longer term, is that not a good thing? Is that not one of the reasons for devolution that we should compete with the English tax system? That's a policy decision for government and not something that I'm here to comment on. It's part of life. KPMG and Ernest and Young apparently compete with each other, I believe. So you are in favour of competition? Competition is a good thing. The area that I wanted to touch on was whether there should be different reliefs for different kinds of purchasers. In the previous session, we also touched on that. I know that the convener raised the whole question of 6 and 15. I'm still struggling to get my head round whether there should be any number and, if so, why these are the appropriate numbers. Again, I think that both the UK and I are trying to help first-time buyers in their competition against the conglomerates. Surely it is a good thing that anybody with more than one property should be paying a bit extra and that will inevitably shift the balance towards the first-time buyer. I'll start with that just now anyway. So could anyone expand on this 6 or 15 or why they should be favoured? The whole issue of 6 and 15 is a bit of a strange one. There's no rationale for why the UK Government has plucked this number of 15 from the air. Whereas with 6, the 6 or moral brings the transaction within the non-residential rates, and it is recognised that that is a commercial transaction. It was my understanding that this was something that was lobbied for in the early days of SDLT by the British Property Federation, that it's got sound reasoning behind it, and that's why the same rule was introduced for LBTT. So there is that clear acceptance that a purchase of 6 or more isn't a residential purchase, it's a commercial transaction. I think that's the first part of that. And then I think the second part is to why they should have relief at all, these big conglomerates as compared to individuals. And I think we probably need more data around this, but I think these larger investors aren't competing with first-time buyers. I think they're buying and investing in very different things. So the larger investors will potentially be buying numerous flats in a big apartment complex to rent out, whereas first-time buyers might be looking to buy existing property stock. So I think there's a key difference there. And I think again, from what you said before, it's this real problem of second homes and holiday homes, and that isn't something that these investors are, this isn't the area that they're looking to invest in. They're essentially, it's this new build, these purpose-built rental sectors. Well, maybe I'll switch to Mr Gordon when we're on the question of new build. I think you suggested that we should favour new builders against older properties, was that correct? Yeah, so the Scottish Government's own strategy in 2013, a place to call home, a place to say a place to call home, I think, talked about fairness, security and safety, but also encouraging more investment into the sector. In the 80s and 90s, we're probably all aware of a house builder starting to develop a site and selling out all of the properties before they've even been built or started building them, and then when they come on the market, people would flip them and sell them, perhaps at a profit, because the market was moving so fast. At the moment, if you look at a development, there's one next to us in a very popular area for rentals in Edinburgh, in Broughton next to our office, and there's 300 flats being built by Barrett. They've been built over the last five years. It's 300 or so flats, and they build them gradually as they get the confidence to build another block because of the number of sales coming through the door. So there is no competition in that development between first-time buyers and investors buying a single flat to purchase. The house builders all have to have a certain amount of land banking in order to plan for the next few years ahead and run their company, whether that's the right amount of land that they control or not, because the confidence to be able to build on that site is very difficult. They can't build any cheaper and they can't reduce the price that they paid for their land, so they can't sell the houses lower than a certain level in order to make it profitable. So the confidence to build those houses, along with faster build-out because there would be an increase in sales if investors were all pushed towards the new-build market, would both encourage new builds to be completed quicker, bringing more houses on the market and more confidence to start new sites, which house builders are keen to do, which may already be in planning or past planning. It will also improve the supply in the private-range sector and drive up the quality in the private-range sector by introducing new-build properties into the market in the right areas, rather than existing properties, which are in poor areas, with electric heating or old single glazing. I would question the quality. I have just been visiting some new properties in my constituency, which happened to be built by Perseman, and the quality is just awful. An individual investor would be better, either individually or a company, to buy an existing stock, like my 1950s flat, where the walls do not move. Would we not be distorting the market away from existing properties if we did something like that, if we favour the new property? The key difficulty in the private-range sector at the moment is the lack of supply of housing to meet the demand. We often do not take on properties that may well meet the repairing standard, because they are not in a good enough condition. They need new carpets. If a landlord says to me why he is suggesting that he will only take my property on if we replace the kitchen and put in new carpets, that is £5,000, will I get that money back in a higher rent? I say, no, probably not, because there is a shortage of supply and tenants have to take what they can get. If they rent their property £500 a month, they will get that, regardless of whether they put a new kitchen in. Although you have a specific experience of development in your area, I have a large experience of visiting flats that I would not want to live in myself in the existing stock, and it is much more common to be in the existing stock than in the new stock. Another specialist area that has been suggested is the student purpose bill. Is that what you call it? The student purpose bill should be treated differently. Is that generally the feeling? Presumably a lot of students rent anyway, so in a bloc, and that is always going to be for students, so that it is not them that we are thinking about. We are thinking about where people buy student flats outwith the main campus setting. One of the points about the student accommodation is that a lot of the purpose-built stuff now is cluster flats, so you have a central dining room and kitchen, and five bedrooms clustering around it. In the context of looking at relief for bulk purchases, the point is that it is treated as one dwelling for multiple dwellings relief, for example, but it is five bed spaces, so maybe it ought to be treated as five. That is one of the points that is being made about student accommodation. Who is buying that kind of place? Presumably it is not the individual investors, so it is not the students or their families. Not generally, no. The whole bloc is not owned by one investor, but it is still bought individually. The whole bloc is bought. This is looking at it from the relief for investors type of angle. It is not actually possible to buy and sell these individually. They have to be bought and sold as a bloc. In theory, they could be split up in future, but that is not the intention of any of the investment companies to do that. Although it can happen in such cases. There is a vague development of when people graduate, they might quite like to live in something like that, which I certainly would not. I do not know, maybe it would be more fun, but they are designed really for students to live in. I guess it is looking at making sure that there is not a slowdown in the development of these. The PRS is again something that probably does need a relief, partly because if there is a relief from SDLT, and it sounds as though there will be, it would be unfortunate if there was not a relief up here as well, although it would not necessarily need to be exactly the same. You seemed more relaxed earlier on about differences between Scotland and England because there are so many already. Are we being too slavish in following? Well, I think that the 15 was plucked from the air, so as Joe has said, also we understand that there is not necessarily any science behind it, but the scale of investment here is quite different, both in terms of student accommodation and the PRS and so on. It is a different consideration. Just on the investment PRS, I think that it is important to understand who those people are that are investing. Standard Life, Aberdeen Asset Management, the type of companies that invest in multi-family homes in America or building blocks of flats to rent in Germany or Holland or across Europe, where more people potentially live in private rented accommodation than here and it is potentially more affordable and higher quality accommodation than you will get here in the private rented sector. And the two key things stopping that investment in this country over the last 25 years compared to other countries is that there is a lack of land available for them to get and building houses that has over the years been profitable with the growth in house prices. So it is very difficult for these, they are not wealthy conglomerates of people who are making vast profits. The margins that I see on specific developments, Plan for Edinburgh, Aberdeen and Glasgow are right on the cusp of whether they can afford to develop the house and make a yield that is anywhere near competing with the commercial investments that they make. These companies are either investing in building another Gael shopping centre or they are building 300 flats for people to live in. If there is a desire to improve the quality of accommodation for people in the private rented sector, it is absolutely essential that those people are not disincentivised from investing either in the UK or in Scotland because that 3 per cent charge, either at the beginning of a new development being bought by an investor and which is being developed for them to buy, specifically where they have arranged that with the developer, or when it is traded on later, if that charge is applied 3 per cent on the value of the investment, it will make the difference between the type of gross and net yields that they can achieve to make it profitable and not. Are those companies only operating in the UK or are you suggesting that they are operating throughout Europe and even throughout the world? RBS is trying to create a billion pounds of investment in this sector, legal in general, and M&G. Lots of UK-based investment companies that are running the pensions for most people are looking to diverge from commercial and to residential at this stage when they have not in the past. It is probably 50-50 that there are the type of pension companies looking to invest here where they will not develop but they will buy it from a developer. RBS is only investing in UK property or in Spain? Will Aberdeen Assetmage invest Europe-wide? Some of the companies that, in Holland, far more people rent their home are here. RBS is used to dealing with multiple tax regimes and multiple legal systems, because if it is the same company that is investing in Spain, Ireland, England and Scotland, it does not matter if it is used to dealing with lots of different systems. Different tax rates are not an issue, penal tax rates are an issue, so they have not invested here because it is not cost-effective at the moment up until now. They are now starting to be cost-effective. Because the tax rates in the UK are much higher than in Holland or Germany? I think that it is more to do with the price of land and the ability to get the land at the right price to build houses. The tax is not a big issue as part of that. It is essential as part of that, because that is the reason— The cost of land is the main one. As far as in my experience, it is all in the mix. If you increase the tax that they have to pay, then you will make it even more difficult to invest. I suppose that the point is that, if you are looking at Edinburgh or somewhere down south, and there is a relief down south from that 3 per cent and there is not a relief up here, then you should stop thinking about up here. However, my point is that, if the companies are investing in Spain, and I understand a lot of British people individually investing in Spain, we should also look at the Spanish tax rate and see how we compare with it. I feel that we are too fixated on what is happening in England, although that is the main neighbour. Shouldn't we also take into account that, if what Mr Gordon says is right about international competition, then we should be looking at Spain and Ireland and things as well, but we haven't got time to do that. I will not expect that answer to that. My final one was just housing associations. Should we be favouring housing associations in any particular way? One point to make is that all the normal reliefs from LBTT will also be relevant for the 3 per cent supplement. If a housing association is a charity, for example, then it would not be paying the 3 per cent supplement because it would not be paying LBTT on a purchase. The example given before was a mid-market rent, where it may be a subsidiary that might not be a charity. Do you feel that any need to be favoured a bit? It would be helpful, but, as has been mentioned, the more reliefs you add on, there will be nothing left to collect. I think that what we are hearing seems to be some other questions to be asked, maybe some other evidence to be gathered. You have mentioned a number of times about a lack of supply in the private rented sector in Scotland. I am joining up with a couple of points that you have said. You have mentioned a lack of supply in the private rented sector, and that is pushing up rents. You also mentioned that there is a lack of inward investment in the sector in Scotland. I was wondering—I am just playing devil's advocate here, and Susanna and Joan mentioned about simplicity. If the decision was taken not to apply the 3 per cent, would that then be an opportunity to expand the private rented sector in Scotland? I think that the difficulty is the risk of too much of inward investment into us, in particular from other parts of the UK. Can you just open up what is that risk? Inward investment from outside of the UK is still different to inward investment from other parts of the UK. It is much easier for somebody who is sitting in London or Manchester to consider buying a flat in Aberdeen or Edinburgh. Somebody in China or the Far East is not going to be looking at what tax changes are made here to try to encourage investment somewhere. Somebody might see an opportunity to try to market things to them if that happens, and we did not have that rate here. That might attract more inward investment here, but that is a risk. By risk to who? A risk to the people that the policy has intended to help. People who are first-time buyers or anybody who is trying to buy a home that they can afford. If more people are trying to buy in the market, the price rises. If there was an exemption for purpose-built rented accommodation, where would the risk be of not applying the 3 per cent? I do not think that there is any risk of not applying the 3 per cent. If the UK Government chose not to exempt purpose-built private rented sector both for rent developments at scale, it would be a fantastic opportunity for the Scottish Government to attract inward investment and to meet the Scottish Government's aim, which is to set the PRS champion in Scotland, which it is funding. My two separate things in terms of individual new-build properties, I would favour an idea where another opportunity is to differentiate by focusing on new-builds altogether. The groups that I am a member of committees on, such as SPF, Scottish Property Federation, the RICS and the PRS working party, there is a consensus across that and many other people about the requirement to exempt purpose-built accommodation at scale. A much smaller number of people like me who are thinking that the idea of exempting new-builds to encourage more new-builds to be built and better quality PRS to enter the sector from new suppliers or new landlords at the individual level would remove the penalising of small landlords versus the large-scale investors, which I think are needed. However, why should small landlords then be excluded from being able to invest if that would then mean an increase in homes? That would be something where a very strong tracking of the data relating to what happens with prices of new-house builds. You could argue that, if everything is pushed into that, the house builders' prices would rise in key hotspots areas. However, at the moment, there is no competition in that market because they are building as they are sold, so they will build more and sell more quickly. That might affect prices, which would have to be tracked. However, that could be a safe exemption to have an interim thing for a year. On point 7, on your submission, going back to assuming that we do apply 3 per cent, you have mentioned that, if a supplement is enacted, we would urge the Scottish Government to consider rig fence and the revenue generated from the 3 per cent investment in housing. On point 7, on point 7, on your submission, I apologise for my own submission. I think that it is important that any taxes that are raised from the property sector are being spent in that area, particularly if it is an additional tax. That is clearly intended to be an additional tax. How that is targeted could be targeted at affordable homes in particular. The last question is a general one. I do not know who wants to answer this one. It is just about the workability of a second or more homes in part 6 of the bill. It says, what counts as a dwelling home by a person? On point 9, on point 2, is the dwelling situated outside Scotland as well as Scotland being counted? I just wondered what your thoughts on that. If that is implemented, how easy will that be to workable, is it? I think that we have some concerns about that. There will need to be quite good guidance. The point being that the legislation talks about ownership of dwellings and it talks about properties overseas being counted if what you have is similar to ownership of a dwelling in Scotland. Obviously, Scottish solicitors are not familiar with the real estate systems in other countries. How is somebody in Scotland going to necessarily be able to tell whether what you have in Spain is similar to ownership in Scotland? There will be quite difficult cases there. It will be important to have guidance from Revenue Scotland saying that this kind of thing in Spain counts, that kind of thing does not, and a list of the things that are in or out. It will not be fair to leave it to taxpayers or their agents to try and fathom whether the thing in Spain—your interest in it—is the same as ownership of a dwelling in Scotland. I think that it is probably inevitable that you have to look at properties all over the place if you are going to look at properties in the rest of the UK, which it would seem sensible to do if that is being introduced. We do see some issues with that. You will be relying ultimately on taxpayers to self-assess, as with many of the other taxes that are currently in place. There are exchange agreements between countries, but you are relying on that working. It is discoverable that a second home has been missed in another territory, so I do think that it is something to be taken into account. That is why we favour a main residence purpose test, because then it would not really matter what you owned around the rest of the world. If you were buying a house with the intention that it is your main residence in Scotland, you would not pay the 3 per cent charge. If you are buying a holiday home or a buy-to-let, you will pay the 3 per cent supplement irrespective of what else you own globally. That would make things clearer for inward investment, but it is also much easier to administer, because, as Isabel said, legalities all over the world are going to be very difficult for people to determine. My general view about the risk of investment from the rest of the UK coming in if we do not have that, I suppose that the main residence thing would potentially remove the risk of people looking for a flat to buy to rent in Edinburgh, because it is cheaper here to do that, because, if they have to come and live in it, that is something that they are not going to do. That is a potential change that could remove some of that risk. Others have said that the main residence exemption would really be the best way to do that if it could be made to work. It is worth mentioning that the capital gains tax main residence comes at the other end. It is a sale-based test, so you can look back and see what actually happened, whereas this is looking forward and what is the intention. It would certainly be much better. I do not know whether it could be linked with incredibly high penalties if you said that it was your main residence and you were basically telling an untruth. It is always a problem with intention, so you need a period of time after which, if it turned out not to be your intention, people's intentions do change. Life happens and different things come into play, but it would be a much simpler way of introducing this to have a main residence exemption rather than going through all these hoops of 18 months and one way or the other. Holiday homes and all the rest of it would be much simpler. Getting the residence definition aligned with the capital gains tax, principal, private residence exemption and, indeed, the Scottish resident income tax. It is back to my point on complexity and ensuring certainty across the taxes. Having one test for one, one test for another, it is going to confuse matters. Following on from that point about the main residence exemption, I am interested in that point, because how easy to administer or to get around such an exemption would be, particularly if, for example, somebody purchase of the property says, that this is my main residence and then, for whatever reason, say employment reasons or anything like that, it ceases to become their main residence, or they could argue that it ceases to become their main residence. How easy an exemption would that be for somebody if they so choose to do so to use untruthfully, as Isabel Dunverno has suggested? That should only live in one place, really, when you get down to it. The Scottish Taxpayer Test, if you have two houses, how do you decide which is the main one and the revenue of issued lists of sort of things that might be taken into account, like where your family lives, where your credit card bills go to, where your clubs are that you belong to. Anecdotally, it is also where your dog lives is a good indicator. All of these things, it is possible to determine that, as a matter of fact, I guess it is the intention that is slightly more difficult at the time. It would really be a question of when you are buying this property, is it going to be the one that you lived in and if it is not, then you have to go back and amend your return and pay the 3 per cent. I guess that we would expect there to be a length of time for which an individual would have to say that this is going to be my main residence for x period of time, because otherwise it could potentially be that for a six-month period it is their main residence and then they flip it or could potentially flip it as a means of avoiding the 3 per cent surcharge items. It is entirely hypothetical, but at the end of the day it merits from probing if such an exemption was going to be suggested. We have already got crawlback provisions in for other reliefs and they could be introduced here. If we claim the 3 per cent as a relief and say six months later we move out and get another main residence and claim the relief again, if we have not disposed of that previous main residence within either the 18-month period or the 3-year period, then the relief we claimed on that should be clawed back. We could have to pay that back. We have clawed back in place for group relief, for certain transactions under charities relief, for multiple dwellings relief, so there is already precedent there. I do appreciate that it might be easier for people to be fraudulent, but I do not think that fraud is fraud. If they are being criminal, they are being criminal. I do not think that the majority of people would be. I guess that flows into the other questions that I wanted to ask. There has been a lot of talk about market distortion and the potential for market distortion either by introducing the 3 per cent or by not introducing the 3 per cent. I guess that the question that I have is that the suggestion has been put there that, well, maybe we should have held back for a year and waited to see what impacts there were. Is there a risk that, if there were significant displacement as a result of the change being introduced in England and Wales but not introduced in Scotland, it is very difficult to undo that displacement a year later and say, well, we will put the 3 per cent charge on it, but if everybody is kind of rushed to make those purchases in the intervening period, it is very difficult for that genie to get put back in the bottle. It is impossible for that genie to get put back in the bottle, really. I do not know if Susanna, do you want to kick off on that? I think that you are right that if it was delayed for that period, then obviously there would be a distortion, but for that period, I think that ultimately over time, if it was then introduced, things sought themselves out. It is not necessarily going to harm things for the more distant medium-term future, but there must be a risk of that for the period that it is different. I do not know if anybody has anything to answer. I agree that that is definitely a risk. I think our approach to it was that it is far more risky introducing hastily put together legislation with collateral damage and unintended consequences, which then takes years to unpick, rather than putting together something that is fit for purpose and does what you want it to do. I think that there are quite a lot of points that we have not bored you with in relation to partnerships and trusts and joint ownership and so on. There are a lot of technical questions that may be necessary to make improvements to the legislation so that things work as intended. We have the cabinet secretary coming up next. If there are technical questions that you think should be put, then getting them on the record at least allows for that discussion to be had. You suggest that it might bore us for that. I do not know. I cannot speak for everybody, but if there are specific questions that need to be put, I think that the committee should be advised us to them. I think that in relation to trusts, we need to be sure quite how trusts are going to be treated where there is a corporate trustee, for example. Is that going to be treated as a trust, which has a corporate trustee, buys a house? Is that automatically going to be treated as a subject to the 3 per cent, even though the trust does not have any other residential properties? That would be a trust where there is a discretionary trust, so there is nobody with a life interest and so on. Similarly, is it clear that where the trustees are individuals, their purchase is in their capacity as a trustee? You would not have thought that those should be affected by what the trustees personally own, so that the house that the trustee owns for himself as an individual should not affect purchases by the trustee as a trustee. Also, there are trustees of more than one trust. Do all of these things—what is the intention for them and do they all work? Are you suggesting that will the purchase be assessed by the trust as an entity, rather than the interests of individual trustees, basically? Well, trustees will either be individuals or it can be a corporate trustee, so you have to try to think how it ought to work. One thing that you would not think ought to be the case is that, if the trustees are individuals buying as trustees, the fact that one of those trustees personally owned a house should not affect whether the trust buying a house has to pay the 3 per cent, so it is those sorts of questions. On partnerships as well, partners are individuals, so it appears to be the case that if any of the partners has a house as an individual and the partnership then buys a residential property that it would be automatically caught, but that does not necessarily seem to be appropriate. In some cases, because it might be a farming partnership buying a house for employees to live in, so it is not clear that that follows the policy. Those are the kind of things that perhaps need to be explored a little further. To our witnesses, we have got the cabinet secretary. We are going to be starting back at 11.45 sharp, so 50 minutes behind schedule. We will get the budget bill this afternoon, so we will just have a brief break until 11.45 to enable an actual break and a change of witnesses. We will now continue scrutiny of the land bill and transaction tax amendment bill at stage 1 by taking evidence from the Deputy First Minister. Mr Swinney is accompanied today by Robert Bucking, Greg Walker and Sean Neill of the Scottish Government. I would like to welcome our witnesses to the meeting this afternoon and invite Mr Swinney to make a short opening statement. I should say that it is not quite afternoon, it just seems like it has been here so long. It is still in the morning, so good morning. I did not want to correct you, convener, but good morning, convener. Thank you for the opportunity to make an opening statement ahead of this morning's session on the land and buildings transaction tax amendment Scotland bill. I would like to start by thanking the committee for the role in expediting the timetable for this bill. The bill delivers against a commitment from the Government in the 2016-17 draft budget to introduce a 3 per cent LBTT supplement payable on additional residential homes, such as by-to-letter second homes. Subject to parliamentary approval from 1 April 2016, anyone buying a residential property in Scotland who already owns one here or anywhere in the world will pay an additional 3 per cent LBTT on the whole purchase price of that property unless they are simply replacing their existing main residence. The bill is being introduced to maximise the opportunities for first-time buyers to enter the Scottish property market and to counteract the potentially distortive effect of the new stamp duty land tax higher rates being brought in in the rest of the United Kingdom. Without an LBTT supplement, the SDRT higher rates would have made it relatively more attractive for investors to buy up homes in Scotland, particularly at the lower end of the market, increasing the competition for first-time buyers. The LBTT supplement will be payable on the whole of the purchase price of an additional home for any transactions of £40,000 and above. The supplement imposes greater tax burdens on purchases of additional property, particularly at lower value transactions, where demand for properties for investment purposes or whole-day homes could make it difficult for a new entrance to the market to purchase a main residence. For example, someone buying a property as their main residence for £100,000 will not pay LBTT, but someone buying the same property for an investment or as a second home will pay £3,000. As noted in the draft budget, the supplement is estimated to raise between £17 million and £29 million in 2016-17, after taking account of behavioural effects, including the impact of underlying LBTT revenues. The Scottish Fiscal Commission has endorsed the estimate as reasonable, recognising the uncertainty that is posed by the lack of Scottish data on those types of transactions. Thank you very much for that opening statement to cabinet secretary. The draft budget states and you have touched on the targets at the lower end of the market where demand for properties for investment purposes or second homes can make it difficult for new entrants to the market to purchase a main residence. One of the things that has been given to us in terms of evidence is that, as the Scottish Property Federation pointed out, the kind of investment that you have said in your opening statement could potentially have a sort of effect is actually only 2 per cent of all investment in the UK comes to Scotland. What the Institute of Chartered Accounts and Inglies of Wales has said is that in copying UK proposals, the Scottish Government has missed an opportunity to distinguish Scotland as an attractive location to live, work and do business. Further adding that the findings of a survey by you give for the council of mortgage lenders that 34 per cent of landlords will reduce investment in the private rented sector following the announced income tax changes in the STLT additional rate. Do you not have concerns and the fact that we have, as has been said, missed a trick there? It is not as if we get much in terms of investment in this sector anyway, so perhaps Scotland needs a bit more investment in this sector. There will always be conflicting ambitions and aspirations in the marketplace. I think that one of the issues that I am certainly very much in my mind, and it was in my mind when I designed the land and buildings transaction tax legislation in the first place, was the importance of ensuring that I created the right investment opportunities for individuals to get on the property ladder principally as first time buyers. I think that the evidence of stimulation of that market has been clear to see from the performance of land and buildings transaction tax since the start of the current financial year. The danger, convener, in taking up the market opportunity that your witnesses have suggested, is that, yes, it could have attracted investment into Scotland, but it could have attracted investment that crowded out the opportunities for first time buyers to gain access to the property market within Scotland and simply by the ability of wider and more financially strong individuals or institutions to be able to invest in the Scottish market in a fashion that made it more difficult for new entrants to access the property market. The judgment that I arrived at when I saw the emergence of the proposition in the United Kingdom was that there was a potential for the policy approach that I had taken in land and buildings transaction tax, which is consistent with the wider policy agenda of the Government on home ownership, in which we have taken some significant steps to try to strengthen the ability of individuals to gain access to the property ladder. Would it have been undermined had I not acted to ensure that those opportunities remained open and available for members of the public in Scotland? In praise of what Cooper said, for example, that there is no competition with first-time buyers in terms of these institutional investors and that there is a consensus that this bill should exclude the purpose of the new build in order to attract them a bit at the same time. That would never have an effect on first-time buyers. What the council of letting agents in the Scottish Association of Landlords have said is that the less favourable legal framework in Scotland is already a disincentive to investment in housing and, therefore, the threshold and rates if the bill is introduced should not be the same as the rest of the UK? There is certainly an argument, convener, which I am exploring and which I am interested in. I remain open to those questions in the light of some of the evidence that the finance committee has seen on the question to the extent to which reliefs should be formulated in relation to the application of the legislation. They are certainly a new-build relief, and I am actively considering that particular question, and I have taken the opportunity and will do so to reflect on those issues once I see the report of the finance committee when it is published in due course. There is undoubtedly an argument to be made in this respect to which I will give careful consideration. The Law Society of Scotland said that bringing in a bill at such haste—I mean that we have only concluded our own call for evidence on Friday and we are trying to—we have had two panels this morning on yourself already and we are having to produce a report next week—is not conducive to the formulation of good quality robust tax legislation. Would it not have been better to wait perhaps a full six months or a year from the introduction of the measure in the UK, the rest of the UK, before considering whether it could be applied to Scotland? That would allow development of the legislation to be greater, and allow more time to create more robust high-quality legislation, as the Scottish Law Society suggests. The first thing to say is that the challenge for the Government and I suppose the test for the committee and for Parliament is the extent to which we can create robust legislation at whatever moment we decide to do it and at whatever timescale we decide to do it. I can think of some legislation in which the Parliament has laboured its way through, given its greatest consideration, and it has been considered by absolutely everybody, and it has been found to be flawed. We can give things all the time in the world and then find that we have missed something when it comes to being tested. That has happened to Parliament on a few occasions, having given it an extensive timescale. I am not going to persuade the committee on all occasions that we should condense the timescales for consideration legislation. I think that it is an observation on what has happened in certain cases. One of the issues that I have discussed with the committee on previous occasions is the fact that our legislative process as a Parliament, which has been carefully constructed over many years and which takes a long time to consider and to assess all the relevant factors within a bill, may not be able to be applied where we have to take swift decisions on tax and budgetary issues. We have seen some of those interactions already. We saw them over the introduction of land and buildings transaction tax, where our careful, thoughtful, preparatory timescale was essentially overtaken by the actions of the United Kingdom Government, and I had to act accordingly. The interaction of wider factors with our legislative process is not always that simple. The challenge for us—I have taken a great deal of time over the course of the formulation of the tax responsibilities of the Parliament to make sure that we consult extensively with organisations such as the Law Society of Scotland, but there are many others who give willingly and voluntarily of their time to help us in the process of creating good legislation, and I want to encourage that. We adopt a particular approach to the formulation of tax legislation, which is as thoughtful and comprehensive as we possibly can make it. However, there will be circumstances where I judge that there is a necessity for us to act, and in that circumstance, going back to some of the earlier answers that I gave you, convener, I would be concerned that, to have left this for a year to be implemented or to be considered. If you leave it for a year, you might end up having to leave it for longer, as some of these issues take time to resolve. We might have found the market opportunities for first-time buyers in Scotland eroded as a consequence of the differential that existed between Scotland and the rest of the United Kingdom. Although there is no hard evidence on that, we have seen so far this morning. One thing that I would say is that the Association of Local Authority Chief Housing Officers has suggested that there should be an early comprehensive review of the impact of this legislation on the housing market with national and local. Is that something that the Scottish Government would want to do? I would certainly give consideration to that, convener. Given the fact that we are undertaking this legislation in an expedited timescale, I think that that is a reasonable request to consider. I have a couple of other points before I open out to the rest of the committee. Loot polls have been raised this morning by the Scottish Association of Landlords, and one or two others. The Law Society has said that any loot polls would be covered by the general anti-avoidance rule. I am wondering whether you believe that that is the case. The Chartered Institute of Taxation pointed out that the inclusion of exemptions and reliefs provides more opportunities for tax avoidance. In view of the whole issue of exemptions, reliefs and loot polls, we should have broadly the same reliefs as would be contained in the UK legislation, as soon as you do not want to have any market distortions. Do you want to take a distinctive approach to that? There are two points that I would make, convener, in this respect. The first point is to reinforce the point that was made by the Law Society of Scotland that the general anti-avoidance rule, which is contained in the tax powers and revenue Scotland Bill, is designed to capture any practices that are artificial. Artificiality is the key test in the general anti-avoidance rule. The Law Society is correct that there is a catch-all threshold. The second point is that in the design and drafting of the legislation, we have to do that in a fashion that minimises the scope for the artificiality test to be avoided. By that, I mean that we have to try to identify in the legislation the approach and the intent, which means that the artificiality test is able to be applied in as many circumstances as possible, where loopholes have been trying to be pursued. The combination of our approach is, yes, a combination of the application of the general anti-avoidance rule, but it is also about trying to get the legislation as effective and as focused as we possibly can. Exemptions and reliefs are an entirely legitimate part of taxation legislation, and there will be circumstances where we wish to design exemptions and reliefs to deal with certain circumstances. However, they must also pass the test of not being designed to create loopholes. We have to go into that process of consideration of what may well be the contents of exemptions and reliefs very much with a mind to avoid any artificial behaviour emerging as a consequence of the drafting and the design of those provisions. The concept of taxation helped to provide an example of a way in which tax could be avoided with regard to the legislation. It basically said that Mr A lives in a flat worth £100,000, he buys a house worth £300,000 to move into and his elderly mother moves into the vacated flat. The supplement would be £9,000. Mr B lives in a house worth £300,000 and buys a flat worth £100,000 for his mother to live in. The supplement would only be £3,000, and the point that they are making is that someone with greater resources can manoeuvre the system to ensure that they pay less as is laid out. It is just how the Scottish Government would address such matters. I am not asking you to specifically comment on that, but I have just given it to you. I am trying to emphasise the fact that there are still concerns in terms of how the legislation is present. I am really looking to see how the Scottish Government will look at that perhaps in stage 2 to ensure that some of that is tightened up. We will certainly look at those circumstances. We established as part of our routine preparations for tax legislation the Tax Consultation Forum, which enables us to hear the view in the devolved tax collaborative. It enables us to hear the views of stakeholders as part of the process. We have had a very helpful discussion with a whole range of stakeholders covering a variety of different sectors and interests. That has given us a great deal of food for thought. We will continue to look at any scenarios that are put to us. Fundamentally, the legislation is designed around the simple test of any circumstance where somebody is purchasing an additional property that is liable for the LBTT supplement. That strikes me as being the correct way to go about that by identifying the lowest common denominator of tests that can be applied and then applying it. Of course, the Government will look at other given scenarios to determine if that test remains to be robust in fulfilling the purpose of the legislation. Cabinet Secretary knows that one of my privileges is to be in the Delegated Powers Committee, and Ms Brennan and I are both on it. I suspect that you have seen the report, and I want to start with that, if I may, this morning, perhaps before moving on to the more interesting side of things. There was one issue where the procedure relates to paragraph 14.2 in the new schedule 2A, inserted by section 1.3, the power to amend threshold figure in paragraph 9.3 of schedule 2A, all of which is that the Government ministers can vary the 40,000 limit. The argument has been put forward that, in other places, the 40,000 is an administrative figure for notification, but in this legislation the 40,000 is actually effectively a tax band. In that below it, properties are ignored and above it, people pay 3 per cent. That is fair enough, but the committee felt that it should not be the negative procedure that was used there, but it should be either affirmative or probably provisional affirmative, because that would be what would normally be used for changing tax bands and tax rates. I wonder if the Government has been able to consider that. We have not considered that issue in full yet, but I understand the point that has been made. Of course, the exercise of order making powers is one that we must consider carefully as part of any legislative process. I will reflect on the conclusions of the Delegated Powers and Law Reform Committee to determine whether there are any changes that we require to make, given that we exercise order making powers with the consent of Parliament as being reasonable to be undertaken in a particular fashion. We have to take parliamentary consent with us on the theoretical exercise of those powers, so I will reflect carefully on the point that has been made by the committee. There is one other point that came up at the committee, which is relevant but was not in the report because it was more policy. On the £40,000 level, somebody owning a property below £40,000 is effectively ignored for the purposes of the legislation. Obviously, valuations can go up and down, and elsewhere in the legislation it would all be about the cost that somebody has paid. However, the valuation could be affected by whether a property was tenanted or not, and it could move up and below the £40,000 level at different times. Can you give us any indication of how that would be treated, or at least that you would look at that point? We would have to go on the basis of the purchase price. It would have to be above £40,000. On the issue of the purchase price, that is the key test of how that judgment has to be arrived at, given the fact that there is a test that has to be applied for notification of a property for LBTT purposes. The point at which our return has to be made is at £40,000, and that will be driven by the purchase price. Although I am just looking at the contents of part 6, which relates to the point on market value. My sense is that the intent of the legislation is clear that we want to capture properties at £40,000. That has to be the test at which the notification has to be made to Revenue Scotland, and it is at that point that individuals would have to register for any payment of a charge in that respect. There has been a lot made of the comparison with the UK, and the conveners have already asked you about that. I remain unconvinced that we are dealing with the same market. If you get somebody in London with a lot of £0.5 million of spare money and they are thinking of buying a holiday cottage in Arden, or a la pool, or something like that, it is very little difference to them. I wonder if we did not have the 3 per cent if they would suddenly all be rushing in and buying more people buying houses. Even if it went up higher to say 10 per cent, would that be enough to discourage them from buying a house? We did have one witness—not today but in paper—that suggested that 10 per cent would have more impact on that kind of thing, on trying to discourage second homes. I wonder if you have thought of going higher than 3 per cent for second homes. I have not. Clearly, the application of the 3 per cent charge is applied differently to the application of LBTT for which we have previously legislated. It raises a larger charge comparatively on a property worth £100,000 as a main residence or £100,000 as a second home. There will be very different charges as a consequence. I think that the differential is there. It remains a significant differential. Part of the calculation that an individual has to make about whether or not they wish to buy a second home will not stop people from necessarily doing it, because people may have in the scenario the financial circumstances that Mr Mason says that they are quite happy to pay the charge, but it is a relevant consideration and it puts up more of a disincentive to making that purchase than would be the case without the existing. I come back to my point to the convener in the earlier questions. Without that, the market in which we are very keen to motivate first-time buyers would be at a disadvantage without provision of this type being in place. That is fair enough. I totally agree and I would be in favour of trying to help first-time buyers or local buyers, as against people coming in from outside with a lot of money with a second home. We did get quite a lot of evidence earlier this morning, which was quite persuasive, that that area, where I think that there is probably broader agreement that we need to do something, is quite different from the private rented sector investment market, where on the whole we probably do want more investment, we want companies coming in, and in some cases it has been suggested, international companies, which are looking at England, Spain and Germany, and we want them to come and invest. Do we need to treat them differently, the individual second home buyer from the slightly larger investor who will create jobs and new buildings in Scotland? I think that we have got to look carefully at the issues that have been raised in the evidence about the private rented market on a larger scale. That is a more substantial investment in the provision of a wider housing supply contribution in the marketplace, as opposed to simply the acquisition of additional properties that might be taking place in already congested housing markets. There are different circumstances that may well exist there, and that is one of the issues that I am considering as part of the legislation. I will be interested in the feedback that the committee has heard on the question, because there are different characteristics to the market between the objectives of boosting housing supply versus protecting the market opportunities of individuals to be able to gain access to the property market. I totally agree with that answer, so I am encouraged for that. The other point that came up this morning was that landlords with either over six or over 15 properties should be treated differently, because the argument was that they were serious commercial organisations, whereas somebody with just two or three or four or five presumably wasn't. Yet we were also told that the 15, which I think comes from down south, was a pretty arbitrary figure. Do you have any thoughts on those particular numbers? I think that there is a debate to be had around those numbers. I do not think that it is a matter of perfect science. Wherever you set that number, I think that it will be a number that will be set on an arbitrary basis, whatever the number is. Ultimately, you have to make a judgment about at what point do you think that there is a commercial proposition that is investing in the private rented housing supply sector, or at what point do you think that there is a mechanism being designed to avoid the impact of the legislation? That is where the point that the convener made at the outset is important that we identify what is the purpose of the legislation and how can we construct the legislation in as robust a fashion as possible to avoid such circumstances prevailing. That is great. Can I explore a possible exemption with you that was raised by a constituent? This person lives in my constituency, but for reasons of employment has to live during the week-up in Aberdeen. It is clearly not a buy-to-let property, although it is the second home, and it is not a holiday property. It is entirely related to that person's employment, and I wonder whether there is any consideration given to exemptions in those circumstances. The first thing that I would say is that the nature of the type of legislation is that there will be a multiplicity of scenarios that can be put to us. My general response to the point that Jackie Baillie said, and I understand the circumstances that have been raised, is that I am open to designing reliefs that can meet genuine circumstances that are legitimate in the process. However, we have to be very careful that, as we go into that territory, there is a fine line between that intent and creating the loop holes of which the convener questioned me earlier on. I acknowledge the circumstances and, certainly in the light of what has been raised with me, I will look carefully at that as I will to all the arguments put forward by the committee in its evidence-gathering process. One of the witnesses that we heard from earlier in a written submission today actually questioned the purpose of the legislation, whether it was to raise revenue or whether it was principally to protect housing supply for first-time buyers. Clarity on that point would be helpful. The purpose of the legislation is to protect the market for access for first-time buyers, but I cannot deny that there is a financial implication in benefit arising. I am going to come on and explore yield with you, because I would be interested to know, because I accept the limitations in data, what steps are being taken to improve data collection, because that will be very valuable in forecasting in the future. We will obviously be monitoring that carefully during the financial year, but we will get actual practice. I think that what we have tried to do in the estimations that underpin the financial memorandum is to construct a picture based on available data that we have through registers of Scotland transactions that give us essentially the best available data that we can have on the volume of second home purchases within Scotland on an annual basis and the applications for the number of buy-to-let mortgages that there are on an annual basis within Scotland. Those are two pretty substantial pieces of data to underpin the assessments that we have made. Obviously, we are in territory here, and this applies right across the whole of the land and buildings transaction tax area and across landfill tax into the bargain, where, because we are now exercising those responsibilities in a Scotland-only scenario, we were able to see the pattern of transactions, and the quality of our data is improving with every single transaction. There will undoubtedly be an estimation level. I am confident that the data that we are using is as robust as it can be available, but, obviously, if Parliament is to agree with the legislation and those provisions are to come into force, there will then be data that will emerge that will enhance the quality of information that we have at our disposal. The committee always likes to request more data, so that is pleasing to hear. Without any unintended consequences, the estimate of yield was £45 million to £70 million. When you apply a series of assumptions about behavioural responses, that drops to £17 million to £29 million, so there is a more realistic assessment there. However, I wonder then, you make an assumption that yield will rise in four years by 87 per cent. That is quite optimistic, and I am wondering what you base that assumption on. Jackie Baillie is correct in her numbers, but there is a substantial explanatory factor that is for stalling in year 1. The year 1 to year 4 comparison is not apples with apples. It has got for stalling in year 1, which, of course, if there is a for stalling effect in year 1 on this precious occasion, the Scottish Consolidated Fund will be the beneficiary of the for stalling effect, which is always pleasing to the finance secretary, but that for stalling effect will only be present in year 1. If we take that factor into account, the growth in the LBTT supplement follows the same assumptions base as the growth in LBTT in general, and those assumptions have been tested and scrutinised by the Fiscal Commission. What is interesting from the evidence that we have had today, and I am sure that you will take an opportunity to reflect on that, is that, anecdotally, people want seeing evidence of for stalling and noted that there may actually be a limited period before the first of April in which people could complete these transactions, which I thought was interesting in that it was different to the experience of LBTT. I do not know whether you will bring forth a set of revisions on that basis, but the anecdotal evidence was that there was no evidence of a rush to buy, there was uncertainty in the market because people weren't aware of the proposals being brought forward. It's early days. I announced this on 16 December, and I suppose that really only will have given people a few weeks to consider these issues, so it may be early days. I am trying to recall the timescales around the explanation of the interaction of the LBTT changes that I proposed and the SDOT changes that the chancellor made. I announced the LBTT rates in October 2014, and the chancellor announced his SDOT changes in December of 2014. The chancellor made his announcement that sparked off the for stalling at the same point, as I have made my announcements here. We have clearly seen the for stalling in the introduction of vanilla LBTT, if I can call it that. What we have done in the assumptions is made an assessment and taken account of for stalling. If it doesn't materialise well, the Scottish consolidated fund on vanilla LBTT will not get the benefit, but we will see it coming through in the LBTT supplement if the pattern of property acquisitions takes the form that I estimate it will. Cabinet Secretary, I have no inside information here, but just for the sake of argument, the UK Government had heard some of the concerns that we have heard this morning and took the decision, for the sake of argument, to delay implementation of this by six months. What would your response be to that? Would you follow in suit, or would you want to apply it on 1 April, regardless? I would apply on 1 April. Regardless of what it is. I assume that the Parliament agrees to all of this. Sure. I do not mind the assumption, but that would be my plan. Obviously, this is a delayed devolved power, and you are perfectly in Parliament's perfect liberty to ignore what goes on south of the border. In terms of the practical impact on the marketplace in Scotland, I would caution against ignoring it entirely. Are you having discussions with the UK Government on the consequence of their consultation to try and get a feel for what they are doing? Are you giving them some idea of what your thought process is so that nobody is hugely disadvantaged or are you not discussing it? Obviously, we are looking very carefully at what the UK Government has consulted on. We have looked at the consultation document that the UK Government has produced, and we have looked at the various issues that it has considered. There are discussions between officials. We are obviously in territory where I think that although I am at the front of the queue to demand access to information from the UK Government, I do accept that we are in a space where it is tax provisions, it is tax regulations. It is difficult to have an open book on some of these questions. We are certainly having those discussions with the UK Government and looking at their announcements. One of the issues that came up this morning—quite a lot—was the idea of somebody who does not want to become a second homeowner in any meaningful way. They are selling their property and they want to buy a new property in terms of their main residence in each case. They purchase a new main residence and for whatever reason, either the sale breaks down or they do not get a buyer initially. My understanding of the legislation that is drafted is that they would have to pay the 3 per cent upfront with the ability to claw it back upon the date of sale of the main residence. Are you open to some form of change so that there does not have to be an upfront fee, or are you fixed in your view? On that point, I have weighed up the arguments. I do not think that it is an absolute black-and-white case here. I have weighed up the arguments and I think that the most efficient way to do it is to secure that upfront payment, given that you essentially would have an outstanding liability that you were trying to recover at a later stage, which I think would be more challenging for the public purse to recover. On the basis of tax collection efficiency, I think that the argument is balanced in favour of the upfront payment, with the rebate opportunity. It is definitely administratively simpler, with less risk to the public purse. Presum that you are speaking to a stakeholder group at the moment, I think that the policy member explicitly mentions them. If you get evidence in the coming weeks from stakeholders who have concerns about the economic impact of that, would you be open to dialogue? I do not want to suggest in any way to the committee that my mind is closed on most questions other than the fact that I am proposing this legislation. I am quite willing to appreciate that this has been done in an expirated timescale. I always try my level best to listen carefully to the feedback that I get from stakeholders and committees particularly. I do not know where I want to suggest that I am willing to consider points put forward by the committee or by the stakeholder community. As I say, I have been grateful to the stakeholder community for the input that they have made so far. I am pleased to hear that. I have no expert at all, but I think that a lot of buyers could become more cautious about taking the leap. If that is reflected in the marketplace as a whole, we would get a bit of a slowdown to the magnitude of which it is unclear. However, if you are open to stakeholder views, I can leave that issue there. You are listening closely for reliefs and exemptions, and you have not ruled them out as such. In your memorandum, you are talking about a couple that you are openly considering. In terms of the financial memorandum, your central projection is £23 million. Is that correct? Does that assume that there are no reliefs and no exemptions, or have you factored into that £23 million, the fact that there may be some exemptions? Essentially, we start off at a range of £45 million to £70 million, and we come down to a range of £17 million to £29 million. That is a pretty broad range of factors of cost estimates that we are operating within. There is lots of scope in there for difference. The proposition that I have put forward is based on the legislation as it stands, which would be the standard expected of me in terms of the financial memorandum, so there are no reliefs included in the headline assumptions that have been made. I have erd on the side of caution in terms of the scale of factors that I have applied against the baseline proposition. I could have settled on a baseline proposition, which would have been somewhere around £55 million, so I am well away from that. The extent of the application of reliefs must all be at the margins on any tax provision. When you get to tax provision when reliefs predominate, you may not have taken the wisest of decisions. The figures on the financial memorandum reflect that the bill is drafted. The point that I have put forward by a number of witnesses today is that the bill is drafted could deter new development, new building of homes and properties. Do you dismiss that, or do you accept that there could be something in that, and therefore you try to amend the bill to minimise any deterrent? I think that it depends on what scale we are talking about. If we are talking about, I suppose, more than a handful of new-build properties, if an individual was developing the possibility of a development of more than, let's say, four or five new-build properties, I do not think that there is a disincentive in this legislation for that to happen. Obviously, I want to listen carefully to the feedback from the market to make sure that that is the case. Do you view that as a new tax or an amendment to an existing tax? I suppose that it depends on who is asking the question and what capacity it is. If it is for a Conservative website to tot up the new taxes that are being introduced, then I think that I would cock any, as they say. This is a supplement to an existing tax arrangement. Thank you, Mark, for being followed by Jean. The evidence that we have taken so far today, one of the suggestions that has been put is that many new-build developments rely on advanced sale of properties and that the buy-to-let market is a key component of that, although when when probed for some numbers that lie behind that, there was a lack of that forthcoming, but the suggestion was put out there and that the 3 per cent supplementary charge may act as a deterrent to investment in those areas and therefore might restrict the ability of companies to finance new-build developments. Is that a concern that you've been made aware of? Is it something that you considered when looking at this? Obviously, in the evidence that has been put forward, a number of points in that respect are advanced. What we have to do is to test those arguments and to come to a conclusion as to whether we consider the evidence to be valid or not. Obviously, in all the evidence that the committee has taken, as well as in the stakeholder community dialogue that we have undertaken, we will go through that exercise to test the validity that we consider applies to all that evidence. One of the other suggestions that was made this morning was that what Scotland should be doing is stepping back and waiting to see what happens as a result of the introduction of the surcharge by the chancellor. It would be fair to say that certainly PricewaterhouseCoopers agreed that there is a risk inherent in that that could lead to significant market distortion in Scotland, which has already taken place by the time we get round to doing anything. Is that one of the reasons why you think that that needs to be introduced simultaneously in order to prevent that potential market distortion from occurring? Precisely, it is my rationale and my rationale for the timescale that I think we… I think… You never come to these judgments just in one neat little compartment. The Government looked at this question through our agenda on housing supply. One of the clear things that I am very obvious to me from Parliament and from Parliament's views on these questions is the importance of securing opportunities for first-time buyers to gain access to the marketplace. When that is a priority for Parliament and it reflects the Government's agenda on housing supply, I think that the necessity of acting swiftly is very clear because we want to avoid a situation… We have gone through a reform on LBTT that has improved accessibility to the marketplace for first-time buyers. I do not want to see that set back by a change that takes place in the rest of the United Kingdom, which creates an implication within Scotland from which we do not have the opportunity to recover. That is exactly why I have taken the action that I have taken. Just before you came in, we were taking evidence from the Law Society for Scotland, and Isabel Daunverno put forward an area that she felt merited some probing. It may not be something that you have at your fingertips, but it may be something that you will need to come back on. It was around the role of trusts. A trust that has no property portfolio or does not own any properties previously makes a purchase, but that trust has either corporate or individual trustees who have property interests. Would those be assessed against the purchase and therefore make them liable for the supplementary charge, or would the trust itself be treated as an entity making its first purchase? Of the top of my head, the trust would be judged to be undertaking its first purchase on that scenario, but I am a bit loath to give definitive responses on scenarios that are put to me at committee. That is how it would strike me as being considered, but it will be one of a number of scenarios that we will look at. I appreciate that. It was given to us on the record, so I thought that I would put it to you. Lastly, you have spoken in response to the convener about the way in which we approach budgeting in this Parliament. That is another example of what I see as an inflexibility of approach compared to that that is afforded at Westminster in relation to the ability to make changes in relation to tax policy. Do you think that the way in which we are approaching this could be improved, or do you think that it is a matter for the finance committee to consider in part of our legacy paper on how the budget process works with the tax powers that we now have and the potential for more tax powers coming in future? I think that that is an issue that we need to look at. I encourage the finance committee, which in a sense observes the same issues and challenges that I observe in relation to the process. I welcome the committee's thoughts and deliberations, and I am quite sure that that reflection will be considered by ministers after the election in May. Our experience in arriving at the approach that we have taken to the exercise of taxation powers over the past couple of years has generally worked satisfactorily, but it has thrown up some significant issues and challenges about timescale. I think that there is a question that needs to be considered here, and the finance committee will be best placed to do that. I want to ask if you consider not introducing this tax. I had to consider whether I would introduce it or not, so I thought about doing it. In your opening remarks, and also in answer to earlier questions, you said that it is about fearing a disadvantage for first-time buyers as a principle of accepting that new tax. Is it not? Is that your biggest concern? My biggest concern was that the Parliament could have reasonably turned round to me in the light of the chancellor's announcement and said, what are you doing to protect first-time buyers and the access that they might have to properties in Scotland in the light of what the chancellor has done in England? That would be a reasonable question for the Parliament to ask me. Whenever I heard the chancellor's announcement, I began to think about the implications, because I have to think about the comparative impact of taxation decisions in other parts of the United Kingdom now that I exercise some of those taxation responsibilities. As I work my way through the difficult, very difficult issues of the fiscal framework, that consideration becomes ever more clear to me that we have to be mindful of the implications of decisions that are taken elsewhere on the potential impact on our policy objectives here in Scotland. Having looked at what the chancellor set out, it became clear to me that the policy objectives that I would wish to pursue about first-time buyers and access to the market are potentially constrained by the decisions that the chancellor had taken. Therefore, I should look at that particular proposition. It seems to me that you may not agree that there are other ways of protecting first-time buyers. Did you look at alternatives to that, if that was the principal reason for accepting the tax? I have to look at the implications of this definitive proposition as to what it is going to do for the marketplace and the market conditions. I think that I will have to look at the most focused and targeted measure to aim to do that. That is what I have looked at. There have been a couple of questions around large developments, as opposed to small. Do you agree that larger developments are eligible for different finance and a different light, rather than comparing them with someone who has one bedroom flat to rent or making a small flat eligible for an edge of parent? What would be the fairness in that system? There are very different scenarios that we have to look at, as to whether or not any exemptions are going to be... The fairness of that is that, as it is currently written, it applies across the board. Equity is delivered in that respect. When we go into the territory of exemptions and reliefs, we have to be acutely aware of the issues of fairness and equity as we consider those questions. We also have to be mindful of a whole range of different scenarios. Jackie Baillie has put one scenario to me today. There will be other scenarios that will have been put to the committee about the circumstances of people living in a property and creating an extra property for an elderly parent or a disabled child or sibling. We have to work our way through all those possible scenarios to determine, if we consider exemptions, and then write the way through to major, by-to-let schemes that might exist. We have a range of different issues that we have to think about as we go through that process. We can take it from what you are saying, that the two basic principles will be protection for first-time buyers, or encouragement for first-time buyers, or availability for first-time buyers to get on that ladder, and fairness. Those are the two principles that you would consider. I know that you said that sometimes there is a lot of time allowed for legislation, and it is not any better than the one that is rushed through. I think that there has been comments that, given a year, I hear what you are saying. In an ideal world, presumably, you might have given this more time. I suppose that more time is always nice to have, but I have a problem that is going to start crystallising on 1 April. I want to be able to act to deal with that and address that to protect the market for first-time buyers. I would be leaving myself open to a problem crystallising, which I do not think would be beneficial to the market in Scotland. I come back to my answer to the convener on the question that we have to make sure that this is our opportunity to try to test the parameters of the legislation and the preparation that my officials and I have taken to bring this forward to ensure that we make this legislation as effective as we possibly can do. It is also a test of legislation being made in Westminster and how we react to it, cabinet secretary. Potentially, we could have legislation made within months of a new tax year that there simply would not be time to introduce. We need to be prepared for that kind of scenario in any case, are we not? Absolutely. That is why the committee needs to look at the issues that Mr MacDonald raises. I support the principle of protecting first-time buyers. It is always in the detail to make sure that we get the solution right. Today, we have heard from the Law Society of Scotland, KPMG, Pricewaterhouse, Coupbards, about their concerns and the written responses to the consultation about people's concerns about unintended consequences and about some really small technical details that, if it is put in place, might not be brought to light as an issue. You have mentioned the lack of data, but you mentioned that there is almost a crowding out of buy-to-let. If you do not put the supplement in place, there is almost a crowding out from buy-to-let, a crowding out first-time buyer. What evidence do you have of that crowding out? First of all, it is my first opportunity to welcome less-event Parliament. If I could take that opportunity in the finance committee and wish it well in the time in Parliament, I think that the issue of the holy grail of legislation is how to avoid unintended consequences. This bill is no different to any other bill that Parliament wrestles with. We have looked or we have had the benefit of input from a wide range of the stakeholder community. This is the benefit of having conversations that throw up scenario after scenario after scenario, in which you have to think, what is the legislation? How does the legislation relate to that scenario? I do not question any of those scenarios. They are the type of the ones that Jackie Baillie raised with me. We have to think, how does the legislation relate to that? How does it capture that? Is that what we really want to do? We have to be mindful of that and take it seriously. That is why we have taken seriously the feedback from the stakeholder community and the evidence that the finance committee has heard. On the question of the evidence, I have to make an assessment of what I think the implications would be for the market in Scotland from the existence of the legislation south of the border. The conclusion that I have come to is that there would be an incentive for people who would encourage a charge south of the border to come to Scotland and not encourage a charge in the market. It is most likely to be in the market that first-time buyers are going to be trying to get access to, whether that is in properties that will be at a level of the market that would attract no LBTT charge below £145,000. That is going to be the first-time buyer market. I cannot definitively prove that we are going to have this absurd of cases, but I can foresee that the circumstances that emerge in that will be the case. Therefore, there is a necessity to act to ensure that we do not find the market skewed by that factor. On the other hand, on the second homes, on part six of the bill, it says about dwellings, not people who own dwellings, but outside Scotland. Can you just talk us through about how you see it being enforced? How do you see that acting being implemented and being enforced in Scotland? When a transaction is undertaken, the information that will have to be made available to Revenue Scotland will require a declaration to be made as part of the return as to whether the individual owns a property elsewhere. That will be part of the administrative process of which a solicitor will have to, when a solicitor undertakes a transaction. If somebody lives outside Scotland and they have a Scottish solicitor acting for them to purchase a property, the solicitor will have to ensure that the information that we require to substantiate a Revenue Scotland return is made available. One of the points that will require to be confirmed is whether they own a residence elsewhere. That will be part of the reason why we have solicitors and why we have the professional standards that are required to make sure that those questions are answered properly. A couple of people who have been witnesses today have suggested a main residence test. Do you think that that is needed? There will be one that will have to be passed in terms of the information that will be required in the return to Revenue Scotland. Let me consider that point. The point is quite clear that we will require individuals to disclose whether they own a main residence, and that will be the trigger for the supplement. However, if there is any further scrutiny that we require to do on that point, we will certainly do it. It goes back to something that Gavin has mentioned. If you almost accidentally have a second home because you cannot sell the other one, would you consider introducing a sort of grace period? I think that we have heard comments of 30 days or 90 days. I am quite open to a grace period question. I think that it will then come back to how long should the grace period be. However, I have heard that evidence, and I certainly would not want to close the door on it at this stage. Thank you very much. I would like to thank all the colleagues who have asked questions today. Cabinet Secretary, have you got anything further that you want to add? Nothing further to add. Can you other to reinforce my appreciation to the committee for its willingness to consider this on an expedited basis in what I know is a very congested timetable for the committee? Thank you very much for that. Just before we wind up, I would like to give my particular thanks to Professor Gavin McEwen for his excellent briefing, which has been provided to all members today. It was an excellent piece of work and extremely detailed. With that, I will call the meeting to a close.