PwC warns of unintended consequences of LBTT amendments

Unforeseen implication could mean buyers who are unable to sell their property due a stagnant market or whose previous house sales do not go through on time are unfairly penalised, the firm said.

Other concerns raised were over so-called reluctant landlords such as people who may become second home owners after inheriting a property or if they need to buy a home for an elderly or disabled relative or a child who is a student.

PwC outlined its views in its submission to the Scottish Government’s consultation on supplementary LBTT taxation.

The firm said it was “vital” that any changes to Scotland’s LBTT have a “positive impact on the housing market if Scotland is to achieve its ambition of growing a strong pipeline of low-cost housing for first time buyers and boost the availability of affordable rental homes for future generations”.

The intervention follows the UK Government’s Autumn Statement announcement of a 3 per cent supplementary stamp duty tax for buy-to-let and second home purchases, which comes into effect on 1 April 2016.

PwC tax partner, Susannah Simpson, who gave evidence to the Scottish Government Finance Committee hearing on Wednesday, said: “It’s crucial that the Scottish Government carefully considers what it is trying to achieve with the LBTT supplement, ensuring that the rules, including any exemptions, actually have a positive impact on the country’s housing supply.

“While mirroring the UK’s supplementary tax policy would go some way to avoiding unnecessary complexity, there are a number of areas where we believe greater clarification and focus should be given in order to support the Scottish housing market.

“Under the current proposals, for example, a taxpayer who is purchasing a new home but has yet to sell their previous property, would be liable to pay the 3 per cent supplement on completion - a move that could cause short-term hardship or prevent them buying. We would suggest that in such cases, rather than them having to wait to reclaim the 3 per cent supplement, a deferral of up to three years could be applied for.

“And if a key tenet of this policy is to encourage first time buyers, the framework could also recognise instances where a parent is helping a child get a step on the property ladder. Or when siblings or friends have clubbed together to buy a home together and, at a later date as finances allow, one decides to buy their first home but the other can’t afford to buy them out or agrees to pay rent until they can. In cases such as these, is the imposition of the additional 3 per cent LBTT charge proportionate and helpful?”

In its submission response, PwC’s tax team in Scotland outlined a number of focus areas including:

Sharon Blain, devolved tax specialist, PwC in Scotland, added: “In the absence of certain key details, it is not yet entirely clear how the proposed supplement will apply. Nevertheless, we remain concerned that the LBTT supplementary policy could have an unintended effect on the housing market, making residential property less attractive for institutional investors for example. These investors play a key role not only in developing new homes but also in bringing uninhabited properties back into the supply chain. Our recommendations minimise the potential for such unintended effects.

“All in all, the magnitude of the task facing Scottish Government as it defines its future tax policies and the challenges this presents should not be underestimated.

“However, if tax policy changes to LBTT are undertaken in a manner that stimulates investment in – and within – Scotland, there is a considerable prize to be won not just in economic terms but for those individuals aiming to get on the property ladder or looking to boost future supply levels.”