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Planned new tax on Scottish land for development could be disproportionate, says expert


The Scottish Government should do more to establish the extent to which developers are 'banking' land that could be otherwise used for housing before planning new taxes to discourage the practice, an expert has said.

Rodney Whyte of Pinsent Masons, the law firm behind Out-Law.com, was responding to a package of council tax reforms put forward by first minister Nicola Sturgeon for introduction after this year's parliamentary elections. The new SNP government would consult on giving local authorities the power to introduce a tax on land for development, and on vacant and derelict land, in order to "reduce land banking and increase supply of homes".

Whyte said that it is "simplistic" to accuse developers of consistently land banking, which refers to the practice of purchasing and holding land for future sale or development. It would be "extremely unusual" for a developer to commit to the capital costs of land purchase and then not develop that land, unless there were "strong commercial reasons" for doing so such as unexpected economic conditions restricting return on their investment, he said.

"The threat of a tax on development land could actually have the effect of deterring investment in residential development in Scotland, particularly by companies with cross-border operations and opportunities, and may have the effect of reducing the prospects of development of sites particularly those which are marginal," he said.

"Without further detail, the proposal appears to be targeted at an ill which does not in fact exist. Before consulting on a solution, the Scottish Government must be careful to establish that there is in fact a problem, the scale of that problem and the underlying reasons for it - so as not to exaggerate the issue or introduce a potentially disproportionate and counter-productive measure," he said.

The latest proposals are separate to the Scottish Government's current land reform programme, which intends to strengthen the relationship between communities and land ownership and improve transparency about the ownership of land in Scotland. The Land Reform Review Group, which was established in 2013 to make proposals for land reform, had suggested that land banking and speculation were contributing to the lack of land available in Scotland for housebuilding, a position that was later rebutted by a Royal Institute of Chartered Surveyors (RICS) group set up to look at ways to improve the supply of land for this purpose.

In its 2014 report, the Scottish Housing Commission set up by RICS concluded that there was no "simple, single factor" that could reverse housing supply problems in Scotland. Its unofficial report set out 15 recommendations covering development, planning, management and taxation, including an aspirational target of doubling the amount of development land going through the Scottish planning system by 2016.

The Scottish Government has proposed ending the current council tax freeze in financial year 2017/18, at which point local authorities would be permitted to increase the tax in their area by a maximum of 3% per year, as part of its package of reforms. The rates payable on properties in the four highest council tax bands would also be adjusted, which would generate an additional £100 million a year. This additional revenue would be "invested in schools across Scotland", according to the first minister's announcement.

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