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Warners LLP| Reaction to Scottish Budget Announcement on LBTT

It is a pretty rare event when a Budget statement brings good news, but John Swinney’s draft Scottish Budget should herald significant benefits for Scotland’s property market.

The announcement that there is to be a 3% rise in LBTT (Land and Buildings Transition Tax) for people who buy second homes or buy to let landlords might be viewed in a dim light by those investors, but it is hugely positive for first time buyers in Scotland, and indeed everyone looking to buy or sell.

But why should a boost to first time buyers be of interest to the wider property market?

In short, those getting the keys to their first house are the drivers for everyone on the property ladder.

If the first time buyers can get on the ladder, it means they are buying a house from a seller who will inevitably be moving up themselves to a bigger house because of say a new addition to the family, growing wealth and so on – and so the chain continues up the ladder.

It means the first time buyers should never be underestimated.

This change means that first time buyers will perhaps now won’t face as much competition from investors in the hunt for properties.

If the tax levels had not been increased it would have made it much cheaper for investors from England and Wales looking for buy-to-lets in Scotland. 

Most countries around Europe already have higher stamp duties for those buying second homes so it makes sense to have Scotland’s tax levels on par, not only with the rest of the UK, but going in tandem with the European housing markets.

While this is a draft budget – and so still needs to be ratified by the Scottish Parliament before coming into effect in April 2016 (although that would seem to be a certainty) – we can have a good stab at the types of “additional residential properties” that will attract this additional surcharge.

Presumably it would not apply to a lock up garage in the New Town? It might however apply to the purchase of your new primary home (which requires to be completely upgraded) two months before completion of your sale of your existing primary home? But no doubt more detail on that will follow.

But having looked at the initial details, it would seem that if someone buys a second home at £145,000 then they pay the 3% surcharge on the whole price – so they’d pay £4350 tax.

In theory, that should help the buyer of a main home in competition with an investor.

If someone is making a purchase of a home costing £250,000 the payments rise further.

For example, someone buying this property as their main home would need to pay £2100 LBTT payment.

But a £250k purchase as a second home or investor buyer, would incur the additional 3% - so an extra £7500 – making the investor’s LBTT bill £9600.

So, (a) it helps buyers of main homes in competition with investors (b) it brings us into line with rest of UK – which means we won’t have an influx of English and Welsh investors buying in Scotland (which would prejudice main home buyers) (c) it recovers some of the tax lost by the last ‘stamp duty’ changes which reduced the tax for most people and regains the treasury some of that revenue (d) investors should buy for the “long term” so they should think of the extra tax over the period of their planned investment.  

My final thought, I hope that all the extra money generated from this, in addition to what has already been put aside, with be specifically allocated to building more affordable homes for people in Scotland so that the dream of owning your own home can be realised by all.

Rate table

Band Existing LBTT Rates Additional Homes Supplement
Up to £145,000* 0% 3%
£145,001 to £250,000 2% 3%
£250,001 to £325,000 5% 3%
£325,001 to £750,000 10% 3%
£750,001 and above 12% 3%

The 3% supplement would be applied to the whole purchase price, and not just the proportion of the price above £40,000

Example LBTT payments

Purchase Price Existing LBTT due 3% surcharge Total tax due
£30,000 £0 £0 £0
£100,000 £0 £3,000.00 £3,000.00
£145,000 £0 £4,350.00 £4,350.00
£250,000 £2,100.00 £7,500.00 £9,600.00
£300,000 £4,600.00 £9,000.00 £13,600.00
£600,000 £33,350.00 £18,000.00 £51,350.00
£1,000,000 £78,350.00 £30,000.00 £108,350.00



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