Tax can be Taxing…

…or an empirical study in the use of tax as a behaviour modifier.


I work in a high street law firm and, like most high street law firms, it does the classic ‘little bit of everything’. Criminal Law, Kids, divorce, executry (dead people), civil law, leases – we do it all. We also do a fair amount of conveyancing. {1}

Conveyancing is the buying and selling of houses. In Scotland, only Solicitors can do that. Estate Agents can market houses, and you can arrange your own private sale, but at some point, a solicitors is involved in the missives, the settlement, the mortgage and the Registration of the new Title. They have to be. it’s the law. In my own experience at the firm, I can do the odd thing, but when it comes to the key points – the solicitor steps in a signs their name on the line.

But, being heavily involved in my firm’s conveyancing department – I’ve developed a strange enjoyment of it and, if I may, I’m pretty good at it. I know what needs to be done during the process. But it doesn’t end for me when it ends for the client. You may get the keys, but there is still work to do behind the scenes.
Your new title needs to be registered to give it effect. Your Mortgage (which is an English Law work we’ve imported into Scotland) needs to be registered for the bank. And, whether you know it or not, you have to pay your tax.
Up until April 2015, when a house was bought in the UK, you had to complete a Stamp Duty Land Tax (SDLT) return. Most people paid no or little tax, but a return had to be done. After April 2015, Land Tax in Scotland was devolved (under the Scotland Act 2012) and the Scottish Government decided to change the regime completely and created the Land & Building Transaction Tax (LBTT) to replace the old Stamp Duty Scheme.

Most people will buy or sell a house. Most people, however, don’t pay this tax. Houses under £145,000 are taxed at 0%. Most people don’t even notice. But a return still has to be done. However, in two weeks’ time, there will be a small but significant change made to the regime – the 3% LBTT Surcharge.
While it has been discussed since the end of last year, the law was only changed last week to bring in this change. Now, if you buy a house and, thanks to that purchase, you own two houses, you have to pay a 3% addition tax on the property. {2}
The thing is though, this only applies to purchases on or after the 1st April 2016…and, as I mentioned, these tax changes have been known about (more or less) since December. So, the savvy buyer spotted, as I’m sure you have, a way round this…buy before the 1st of April. This is the issue.

In the next 2 weeks, my firm has 13 settlements. For a relatively small high street firm – that’s a lot. A lot of reports and mortgages and deeds and letters and phone calls and factors and post. In the mad rush trying to beat the 3% Tax, people who know their way about the system, are getting in quick. Those who maybe have a 2nd house on the side for rental income, but don’t make a living off of it, are most likely to lose out.
This has led to a log-jam of sales happening on the 24th, 29th, 30th and 31st March. because there are so many sales, services conveyancers need ready access to have been busy too. It’s created a more stressful situation (and messier desks) for conveyancers than usual – and the sector is not a stress free one to begin with. You are more likely to complain about your house sale than your prison sentence.
It seems odd, I know, to ask for pity for lawyers, but every conveyancer on the other end of the phone I have spoken to has said similar things. It’s become a “top trumps” kind of thing. {3}

What then, is the solution?

When the Chancellor of the Exchequer gives the UK Budget speech, there are always a few minutes of business before the Leader of the Opposition responds. During this time when (inevitable) Andrew Neil chats to John Curtice about something-or-other, a series of votes are taken on raises on alcohol and tobacco duties that will take effect from 6pm that evening. Most people work 9am until 5pm – so there’s very little chance of stockpiling to avoid the rises and, therefore, fewer long queues at the supermarkets.
Could this work for future LBTT changes? Instead of having a 2/3 month long “you know it’s coming” period, could we change to a “too late! It’s already here, manoeuvre”? I picture it working something like this:

  • During the Scottish Budget, the Finance Secretary announces the LBTT increase.
  • Immediately after the speech, there are votes on that increase, laid before the Scottish Parliament by Scottish Statutory Instrument.
  • Any missives entered into prior to 5pm on that day avoid the increase in tax.
  • Any missives entered into after 5pm that day are subject to the increased tax.
  • You pay the lowest rate of tax that applied during the time while missives were being negotiated. {4}

This means that, at most, the “in between times” last for 5 hours and actually allows more transactions to, potentially, be caught by the increase in tax. Winners all round. There are no last minute rushes to pull everything together and it makes for happy buyers, sellers, and (most of all) lawyers!
Infrastructure-wise, most LBTT returns are made on-line, and the system asks when missives were concluded (for a reason I have still not ascertained). It would not be difficult to amend the data entry (while, hopefully, improving the usability of the system overall) to take account of the reduced cross-over period where the date the offer was submitted is a factor.

This proposal suggests a small improvement. A slight one  – but one that would make a real difference to the Legal profession and to buyers and sellers of property in Scotland too. It would need a legal framework to allow the changes to be passed quickly, and also changes to the on-line LBTT system, but there is no reason why with careful planning, this mad rush at the end of the month couldn’t be avoided, and we could have a better system in place.


{1} It continues to come as a surprise to me, and this may be the effect of 5 years studying Law, the number of people I have to say, “I do a lot of conveyancing…[blank face]…buying and selling houses”. Is the term not widely known outside the legal profession?

{2} This is a very potted version of the tax. There are  number of other consideration, but in most circumstances, this rule can be applied and the outcome is correct. If you’re really interested, you can read the Revenue Scotland Guidance to get the full picture.

{3} One solicitor told me he has 21 transactions settling on the 30th and 31st March!

{4} This rule needs to apply for a technical reason. Say you put an offer in the day before Scottish Budget Day and the rate of tax was decreased as opposed to increased. There would be an incentive to withdraw from the sale/purchase, then resubmit the offer again to benefit from the lower rate of tax. At the start of the transaction this isn’t such a big problem – but if it was the week, or even the day, before the transaction (and the tax gain was large enough) there are a whole new bunch of problems this could create, particularly for those getting mortgages.

State Aid for Private Prosecution

The Glasgow Bin Lorry case continued to march on this week as Michael Matheson, the Scottish Justice Secretary, announced that Legal Aid would be provided for the families seeking to bring a private prosecution against the driver, Harry Clarke.

I don’t think the private prosecution will succeed, but I don’t want to swell on the merits of the action itself here. I want to look at the decision to provide state funding to let the families make their case, and specifically, why it is a decision that should raise more questions than it so far has. I might be useful to have Matheson’s statement to refer to:

“Private prosecutions are, and should remain, exceptionally rare in Scotland. However, in light of the unique and special circumstances of this case, which raises fundamental questions that have not previously been tested in case law, Scottish Ministers believe it is in the public interest that all parties are adequately represented.

As such, Ministers have agreed to make legal aid available for the families of the Bin Lorry tragedy.

In line with human rights requirements that anybody facing potential criminal prosecution must be legally represented, legal aid will also be made available to the driver of the bin lorry, Mr Clarke, and to Mr Payne in relation to another potential private prosecution in separate case.

The issue of whether there are exceptional circumstances to justify a private prosecution is a matter for the High Court alone and do not form part of this legal aid decision.

Responsibility for deciding whether or not to prosecute an alleged criminal case in Scotland rests clearly with the Crown Office which has a strong record in prosecuting crime.

The determination is not being made on the basis that Ministers agree that there was any error in law in the decision by the Crown. The Lord Advocate has set out publicly the basis for the decision not to progress a prosecution following the Bin Lorry tragedy.”

In short, the Scottish Ministers have decided agreed that Legal Aid should be made available to the families bringing the private prosecution. They have an ability to do this under s.4(2)(c) of the Legal Aid (Scotland) Act 1986 – though it is unusual, with matters usually being handled by ever solicitor’s favourite body, the Scottish Legal Aid Board.

Matheson states that the reason this extra-ordinary step has been taken is because this of the “unique and special circumstances” of the case, and the fact it asks “fundamental questions” that haven’t previously been raised. My first question would be to ask what are the “special circumstances” and what are the “fundamental questions”?
The jurisprudence behind Private Prosecutions in Scots Law is quite clear with the Carol X  case providing a hand book in itself. In short, there have to be “very special and exceptional circumstances” to allow a private person to bring a prosecution when the Crown has already declined to do so. The prosecution can’t be unfair towards the accused person; must have sufficient evidence and it must be in the public interest to prosecute.
These are considerations Prosecutors in Scotland face delay. Does the case prove? Is it in the public interest? We know, thanks to the Fatal Accident Enquiry that there is nothing the Crown Office didn’t know when it decided not to prosecute that it ought to have known. It seems there are no special circumstances.

What then of “fundamental questions”? The rules for Private Prosecution, as I’ve said, are  not dubious. Whether these particular facts fit into these is a different question, but not one of fundamental judicial importance.
It’s not particularly clear what the victims’ families propose to charge Mr. Clarke with. There can’t be any questions relating to the development of Scots Criminal Law more generally – if only because we don’t know where hey would be coming from.

Unless the Justice Minister chooses to elaborate (and for reasons I’ll discuss in a second, it is unlikely a fellow Member of Parliament will ask him to), we are unlikely to gather any further information from him. So, what could it be?
From the moment the tragedy occurred, it has big news in Scotland. The media and the public have been following the case from the start. When it first became clear that the lorry-driver, Mr. Clarke, had suffered a black out and was not simply reckless, public opinion was firmly behind him. However, when the black-outs were publicly reported as being related to a previously known condition, the public and the press completely reversed. During the FIA, the the right not to incriminate yourself was deemed “170 insults to the dead” and it seemed the only way justice could be done was through prosecution.  The tone was that the Crown office had messed up in deciding not to prosecute and blocking off that possibility – hence the private prosecution.
So, to stand in the way of the Private Prosecution would to deny the families of the dead their day in court. That would not produce happy headlines for the Government only 2 months out from an election.

Matheson makes clear that he isn’t predetermining the case (that is the High Court’s) and that he isn’t seeking to overturn the Lord Advocate’s decision and question the Crown Office. The difficulty going forward, however, is the message this sends out. Given that the idea of private prosecutions is – let’s be honest – pretty new to the zeitgeist, the rules around them are not clear in the public s mind. But now, the government might fund them. Why not give it a go?

The Scottish Legal Aid budget, as I have stated before, is a subject of particular interest to me – as is access to justice more generally. But this year the Scottish Government cut Legal Aid Budget both in real terms and cash terms! Given the strain this will put the system under already, I am not convinced that it is a good use of these public funds to commit – with no clear legal basis for doing so – an undetermined amount of money on a challenge the nature of which is not yet clear, to a decision of the public Crown Office when nothing appears to have changed since that decision was taken.

Nothing, that is, except public opinion.