5. Chapter Three Responses
Question 7 Responses are grouped by theme.
Some respondents pointed out that the eligibility criteria appear to be set out differently in the Order and the consultation document. For example, CIOT commented: "Although this sets out four criteria, these do not appear to match those set out earlier in the consultation document (paragraph 8). In particular, the draft legislation does not include the need for the buyer to be a natural person…The fourth condition in the legislation relates to linked transactions, which is not one of the four criteria referred to in the consultation document." A similar point was made by the Law Society and by ICAS, who also suggested that the legislation should set out that recipients of the relief would also be classified as Scottish taxpayers by default."
With regard to the criteria, the CIOT proposed a minor wording change to make it more explicit that the transaction must involve a single dwelling.
Definition: Major Interest
More significantly, there was consensus among organisational respondents that the insertion of a second definition of 'major interest in land' into the LBTT Act 2013 would cause unnecessary confusion.
In this respect, CIOT commented that: "We think that having two different, albeit similar, definitions of the same phrase within one piece of legislation is highly likely to cause confusion and add to complexity. Consideration should be given as to whether this new definition is actually required or whether different terminology could be used, particularly given the consultation refers to a 'major interest in a dwelling' rather than a 'major interest in land'."
These comments were supported by the ATT in their response, whilst ICAS set out their view that the proposed definition required further attention. They commented that: "The proposed definition of "major interest" requires some further attention: "Ownership or an interest other than ownership with a market value that is or would be above the nil rate band for LBTT" is confusing. In particular, the meaning of "an interest in land other than ownership" needs to be clarified.
CIOT also noted that: "The condition as set out in chapters one and two of the consultation refers to a 'major interest in a dwelling'. This means that individuals who have held or currently hold interests in non-residential property may benefit from the relief."
In addition to comments around the complexity that having two separate definitions of "major interest" could create, the Law Society and EY additionally commented on the application of the proposed definition with regard to lease arrangements.
With regard to this, the Law Society made the point: "In relation to Scottish leases, it is likely that the tenant's interest would be outwith this threshold. However, that is not certain and it seems unfortunate that any tenant's interest in residential property should require consideration."
EY noted that the differing definition of "major interest" in its use within LBTT legislation could cause significant confusion. They raised concerns that proceeding with the current draft Order could cause different tax results in comparable situations: "If the buyer had previously purchased a house with the value of £100,000 and then purchased a new house, first-time buyer relief would not be available. However, if they had previously acquired a leasehold interest in a dwelling for the same value, it appears the relief may be available for purchase of the new house".
ATT requested clarity on the definition of a "buyer", asking whether this was sufficient, taking account of existing legislation and guidance, to deliver the proposed approach on defining a first time buyer. It was suggested that the term "beneficial owner" may have broader applicability.
Both the Law Society and ATT also made proposals relating to liferent situations. The Law Society commented that while the proposed rules on bare trusts and beneficiaries under settlement trusts were seen as logical, in relation to qualification for the new relief, they are were less logical in relation to disqualification based on previous deemed ownership through such a settlement, with potentially unfair consequences for some liferenters.
In discussion of the "major interest" definition, as covered above, ATT also suggested that consideration be given to whether the relief should be restricted only if the individual still has a liferent (or life interest under English law) in residential property held by a trust at the time of their purchase, or if they have ever had a liferent/life interest.
Regarding alternative finance arrangements EY noted that relief for alternative finance arrangements within paragraph 7 Schedule 7 LBTT (S)A 2013 (land sold to financial institution and a person in common) appeared to have been omitted.
The Scottish Government consultation noted that the draft consultation instrument would need to be refined to detail the level of relief available. The absence of this detail was picked up by some respondents.
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