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Tax breaks plea to Darling
23/11/2008
Deputy First Minister Nicola Sturgeon has called for the Chancellor, Alistair Darling, to grasp the opportunity to provide major investment for housing in Scotland.
Ms Sturgeon has said now is the time for the Chancellor to inject major capital public sector investment in affordable housing in Scotland.
Ahead of his pre-Budget Report next week, Ms Sturgeon said Mr Darling must take bold steps to invigorate the housing market, and help Scots home owners who have lost their jobs.
The Deputy First Minister suggested to Mr Darling key steps to help the Scottish economy:
- Injecting major capital public sector investment in affordable housing in Scotland.
- Boosting Scotland's construction industry by applying a permanent reduced VAT rate of five per cent for Registered Social Landlords repairing and maintaining their housing stock.
- Applying a temporary reduced VAT rate of five per cent for homeowners repairing and renewing houses.
- Speeding up changes to Income Support for Mortgage Interest (ISMI), where the UK Government helps pay interest on a mortgage. The Scottish Government is pressing for help to start from January 2009, to cover interest on mortgages up to £175,000.
- Address some of the barriers that hinder large scale investment in the housing market, particularly in the private rented sector, which is bearing much of the brunt of the credit crunch in terms of increasing demand and rents. Revisit anomalous rules on stamp duty for bulk purchases and encourage institutional investment by revisiting the rules for residential Real Estate Investment Trusts(REIT).
Ms Sturgeon said:
"Next week, Alistair Darling has a gilt-edged opportunity to do the right thing by lending a helping hand to boost Scotland's housing industry.
"There has never been a more opportune time for the Chancellor to inject significant funding for much needed affordable housing across Scotland.
"At a time when so many jobs are being lost, he should also provide a boost for Scotland's construction sector, by applying a permanent reduced VAT rate of five per cent for Registered Social Landlords repairing and maintaining their housing stock.
"We also want the Chancellor to bring forward the reduction in the waiting period before ISMI can be claimed by home owners who have lost their jobs, and the increase to the total mortgage value on which ISMI is payable.
"This combination of measures would lay the foundations for a revival in the fortunes of a hard-pressed housing market. It would also help Scottish homeowners feeling the financial pressure of the economic downturn."
The UK Government has scope through a European Union VAT Directive to apply a reduced VAT rate until 2010 for repairs and renovations as a measure to help employment and reduce tax evasion in a labour-intensive industry. It has chosen not to do so, although it applies in the Isle of Man.
Some people may qualify for Income Support for Mortgage Interest, which pays the interest on a mortgage up to £100,000 after 39 weeks.
The UK Government has already announced the decision to shorten the waiting period (on a temporary basis) to 13 weeks before ISMI can be claimed by homeowners and also that interest will in future be covered on mortgages up to £175,000 (up from the current £100,000 limit) to ensure that ISMI support reflects average house prices in the UK.
The Scottish Government previously pressed for such changes and is now pushing for this help to start from January 2009.
Where investors buy more than one property they are charged Stamp Duty Land Tax (SDLT) on the overall transaction value of the purchase and not on the individual unit price of each property. This means they are charged at a rate of four per cent, where the transaction value exceeds £500,000. This can put investors at a disadvantage compared to individual property purchases that are charged SDLT at one per cent if the unit value is between £175,000 and £250,000.
Real Estate Investment Trusts (REITs) were intended to provide a tax-efficient investment vehicle for commercial and residential property. Since REITs were introduced by the UK Government in January 2007, a number of commercial property companies have converted to REIT status. However, there are currently no REITs based on residential property. Organisations like the Scottish Property Federation cite problems with the rules governing residential REITs making these vehicles unattractive to investors who may be seeking a long term, stable return from the housing market.