Implementation of the Scotland Act 2016: second report

Scottish Government sixth annual report on Part 3 (Financial Provisions) of the Scotland Act 2012 - second report on implementation of the Scotland Act 2016.

Chapter 1 - Fully Devolved Taxes

Scotland Act 2012


1. Over the year, the Scottish Government has laid a number of proposals for changes to fully devolved tax legislation before the Scottish Parliament.

Fully devolved taxes – rates and bands

2. Proposed rates and bands for 2018-19 for Land and Buildings Transaction Tax ( LBTT) and Scottish Landfill Tax ( SLfT) were published in Scotland's Budget: Draft Budget 2018-19 on 14 December 2017. [1] On the same day, the Scottish Fiscal Commission published its 5-year forecasts for the fully devolved tax revenues in Scotland's Economic and Fiscal Forecasts December 2017. [2]

3. LBTT rates and bands will remain unchanged for 2018-19 along with the rate for the Additional Dwelling Supplement ( ADS). SLfT rates will rise in line with inflation and continue to match tax rates in the rest of the UK. A rate-setting Order for SLfT was laid before the Scottish Parliament on 28 February 2018, and will be considered by Parliament on the 14 March. Subject to parliamentary approval, the new rates will be in place for 1 April 2018.

4. In addition to this, the Draft Budget introduced a new LBTT relief for first-time buyers of properties up to £175,000. The relief raises the zero tax threshold for first-time buyers from £145,000 to £175,000. First-time buyers buying a property above £175,000 will also benefit from the relief on the portion of the price below the threshold. This will benefit around 12,000 first-time buyers every year by up to £600, and 80% of first-time buyers will not pay any LBTT at all.

5. A consultation on the relief was launched on 9 February 2018. Following the consultation the Scottish Government will introduce secondary legislation to the Scottish Parliament. The Scottish Government's intention is for the relief to be in place for June 2018, subject to parliamentary approval.

Land and Buildings Transaction Tax ( LBTT) – supplement on additional homes

6. An order to amend the Land and Buildings Transaction Tax (Amendment) (Scotland) Act 2016, which introduced an LBTT supplement on purchases of additional residential properties ( ADS), came into force on 30 June 2017. The Land and Buildings Transaction Tax (Additional Amount-Second Homes Main Residence Relief) (Scotland) Order 2017 provides relief to economic units (spouses, civil partners and cohabitants) replacing their main residence but where only one name was on the title deeds of the previous main residence.

7. The Land and Buildings Transaction Tax (Relief from Additional Amount) (Scotland) Bill was introduced to Parliament on 13 November 2017 and aims to give retrospective effect to the LBTT Order. The Bill is undergoing the process of parliamentary scrutiny and will come into effect in June 2018 if it secures parliamentary consent.

Scottish Landfill Tax ( SLfT) – Amending Regulations

8. Scottish Ministers introduced the Scottish Landfill Tax (Administration) Amendment Regulations 2017 on 28 April 2017 which came into force on 29 May 2017. The regulations make minor technical changes to the communities fund and update incapacity and bankruptcy provisions. The instrument brings references in the regulations to insolvency and bankruptcy up to date following the Bankruptcy (Scotland) Act 2016 and into line with the Land and Buildings Transaction Tax (Scotland) Act 2014. The regulations also align accounting and reporting duties placed on approved bodies (bodies that distribute funds) with normal statutory accounting practice as set out in the Companies Act 2006. The regulations also make minor technical amendments to the communities fund to provide additional clarity on what constitutes spending.

Tax Tribunals

9. Work has been completed regarding the integration of the Scottish Tax Tribunals to the new Scottish tribunal system under the Tribunal (Scotland) Act 2014. The Scottish Tax Tribunals were transferred to the First Tier Tribunal for Scotland Tax Chamber and the Upper Tribunal for Scotland on 24 April 2017. Both are administered by the Scottish Courts and Tribunals Service.

10. The tax tribunal has an important role to play in resolving tax payer disputes, if they are unhappy with decisions made by Revenue Scotland and to assist in clarifying the law for Revenue Scotland and taxpayers.

Revenue Scotland Operations

11. The following paragraphs summarise the progress and performance of Revenue Scotland in its first year of collecting devolved taxes; comments on projected revenue outturn against forecasts; and notes the tax legislation changes made by the Scottish Parliament during the year.

12. Revenue Scotland completed its second full operational year in April 2017, collecting a total of £633m - £484m of Land and Buildings Transaction Tax and £149m of Scottish Landfill Tax. This meant that since coming into effect in April 2015, over £1bn had been collected from the devolved taxes by Revenue Scotland. The organisation operated efficiently and effectively, with running costs in its first two years of less than 1% of the total tax collected.

13. At the end of the 2016-17 financial year, 99.7% of all tax returns submitted had been paid either within the financial year or within five days of the year end.

14. The LBTT Additional Dwelling Supplement came into effect from 1 April 2016 for purchases of second homes and buy-to-let properties in Scotland. Revenue Scotland provided a range of communication and engagement activities before and after the introduction of the supplement to support agents' understanding of the change and help reduce the risk of complications for residential transactions.

15. The organisation continued to encourage agents and taxpayers to use the Scottish Electronic Tax System ( SETS), building on the healthy take-up of online submissions from Year One. The proportion of returns filed online increased from 98.1% to 98.8%. In terms of customer service, average call waiting times to Revenue Scotland's support desk fell from 10 seconds in 2015-16 to under 7 seconds in 2016-17. Of the written communication initiated by taxpayers and agents, 97.9% were responded to within 10 working days, an improvement on 2015-16 (95.6%).

16. The organisation places a strong emphasis on effective stakeholder engagement and consultation. Following positive feedback from attendees of our LBTT and SLfT forums that were held during our first year, a schedule of further events enabled stakeholders to hear from Revenue Scotland on significant changes ( e.g. Additional Dwelling Supplement) and provide insight and reflection on the end-user experience of our systems and processes.

17. In April 2018, Revenue Scotland will publish its second Corporate Plan, setting out the strategic objectives and ambitions of the organisation for 2018-21.

Scotland Act 2016

Air Departure Tax

18. Following the devolution of powers over Air Passenger Duty ( APD) to the Scottish Parliament under the Scotland Act 2016, and as confirmed in the 2016-17 Programme for Government [3] published on 6 September 2016, the Scottish Government introduced the Air Departure Tax (Scotland) Bill [4] to the Scottish Parliament on 19 December 2016.

19. The Air Departure Tax (Scotland) Act 2017 received Royal Assent on 25 July 2017. This makes provision for a tax to be charged on the carriage of chargeable passengers on chargeable aircraft by air from airports in Scotland. ADT tax bands and tax rate amounts are to be set by regulations.

20. Provision had been made for Air Departure Tax ( ADT) to replace APD in Scotland from 1 April 2018 under terms agreed between the Scottish and UK Governments in the fiscal framework. [5]

21. However, the introduction of ADT in Scotland has now been deferred until the issues raised in relation to the exemption for flights departing from the Highlands and Islands can be resolved. The UK Government will maintain the application of Air Passenger Duty in Scotland in the interim.

22. Revenue Scotland, Scotland's tax authority for devolved taxes, will be responsible for collecting and managing Air Departure Tax. Following the decision to defer introduction of the tax in Scotland, Revenue Scotland has conducted a programme closedown exercise and communicated a high-level 'start-up' plan to Scottish Government to help inform plans for introduction in the future.


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