Make Sure You Don’t Get Caught Out By The “Second Home” Tax
Make Sure You Don’t Get Caught Out By The 'Second Home Tax'
In April 2015 the Scottish Government introduced Land & Buildings Transaction Tax (LBTT) to replace Stamp Duty as the tax paid when purchasing a property in Scotland. 12 months later an amendment was made such that anyone purchasing a property would pay an additional tax equating to 3% of the total purchase price of the property if they own another property.
The theory behind this was simple. Those who were buying a second home or buying for investment purposes would pay a higher rate of tax than anyone who was selling their current home and replacing it with a new one.
In practise however, things are a little less clear cut and, if you are thinking of moving home, it’s possible that you might end up facing a higher tax bill on your new property than you had bargained for.
Why Things Can Become Complicated
In the first instance matters can be complicated by the fact that if your spouse, civil partner, or co-habitee own another property, you will have to pay a higher rate of tax when purchasing. In other words although you do not actually own part of your partner’s property you are treated as having bought a second for the purpose of this new tax.
We are also operating in a sellers’ market, and many people are now opting to buy before they sell. In this scenario, you would end up paying the additional 3% tax on your new property as, at the time you buy it, you would still own your existing home.
While in many cases it is possible to then claim this money back once you have sold your existing property, this is not always the case. If, for example, the names on the title deeds for your new home are not exactly the same as those on the deeds for your current property, you may not be able to claim the money back. This commonly happens when people are selling a home that they bought by themselves and buying a new property with a partner.
Similarly, if you own all or part of a property elsewhere in the world then come to buy a family home in Scotland which you will use as your main residence, the additional 3% supplement will apply.
Making Sure You Don’t Get Caught Out
The reality is that there are myriad different scenarios when buying and selling a home and it’s important to realise that you may still be liable to pay the additional supplement even if the property that you are buying will be your main residence. The best course of action is to speak to your solicitor as early as possible about your situation. They will talk through your specific circumstances and guide you on how much tax you will pay on your purchase so that you don’t get hit with an unexpected bill.
If you are thinking about buying a property and would like to speak to somebody about LBTT or any other aspect of the buying process, feel free to get in touch today on 0131 667 0232 and one of our team will be happy to help.