Will Stamp Duty Relief For First-Time Buyers Affect Scotland?

As part of his autumn budget in 2017, Phillip Hammond announced that Stamp Duty Land Tax (SDLT) would be abolished with immediate effect for first-time buyers buying a property up to the value of £300,000. Here’s a look at what it means for anyone looking to get onto the property in Scotland. 

Will First Time Buyers In Scotland Benefit From The Tax Relief?

No. The Scotland Act 2012 saw powers over SDLT being devolved to the Scottish government and in April 2015 SDLT was replaced north of the border by Land & Buildings Transaction Tax (LBTT).

As a result the changes in November’s budget don’t apply to the Scottish market and first-time buyers will continue to pay tax on any property bought for more than £145,000. 

Is The Scottish Government Likely To Follow Suit?

The early indications are that the Scottish government will not offer a similar tax relief on LBTT. Immediately following the budget the First Minister’s Chief of Staff, Elizabeth Lloyd, tweeted that "the average of all house prices in Scotland is £145k which is where LBTT starts" meaning that most first-time buyers already don’t pay LBTT, whereas in England & Wales the average house price is almost double the level at which SDLT kicks in. This would suggest that the SNP is setting their stall out to resist any calls for a similar tax break in Scotland.

The political landscape can change quickly though, and it's worth pointing out that changes to property taxation north and south of the border have followed very similar trends in recent years. In December 2014, when SDLT moved away from the old banding system, the changes were very similar in principle to those which had already been proposed for LBTT.

Similarly when Westminster announced that an additional 3% tax would be applied to purchases of additional homes in 2016, it was a move that was quickly replicated for LBTT in Scotland.

UPDATE - As part of the budget statement delivered by Derek McKay in December 2017, plans to implement LBTT relief for first-time buyers on purchases up to £175,000 were announced. You can read more about the announcement and its likely impact on the market here.

Will First-Time Buyers Move South to Avoid Paying Tax When Buying a Property?

This is highly unlikely. In the first instance, the average property price in Scotland is substantially lower than the UK average. The Nationwide House Price Index shows that in the third quarter of 2017 the average house price in Scotland was £146,022, well below the UK average of £210,982. For most first-time buyers, any saving in tax would be more than offset by the extra amount that they would need to spend to buy their new home.

The rate of tax paid by most first-time buyers in Scotland is also relatively low in the grand scheme of things. Those buying a property for £145,000 or less will pay no tax. For those who buy a more expensive property the tax only applies to the portion of the purchase price over the threshold, not the whole purchase price, so the tax doesn’t immediately jump to high levels.

As a result, there’s a number of factors that are way more important than property when the vast majority of first-time buyers are deciding where to buy. Moving to a new area would likely mean having to move jobs as well as leaving behind friends and family, so in reality we just aren’t likely to see many first-time buyers decide to move south just to avoid paying LBTT.

Would Abolishing LBTT for First-Time Buyers Help The Property Market in Scotland?

In the short-term, abolishing LBTT would help any first-time buyers looking to buy a home for more than £145,000. If a couple were looking to buy their first home at £200,000, for example, they would save £1,100 in tax. That’s money that they could instead put towards a deposit, to help furnish the property once they move in, or to simply act as a safety net. Additionally, freeing up more upfront cash would go some way to alleviating the problems caused for first-time buyers by lenders not being willing to lend over the Home Report valuation.

In terms of the overall market, however, the benefits would be limited. The fundamental problem for first-time buyers who are struggling to get onto the ladder is that property prices are too high. The population of Scotland is rising, people are living longer and the average household size is reducing. As a result the total number of households across Scotland, and especially in Edinburgh, is projected to rise for the foreseeable future and the rate at which we are building homes has not been sufficient to keep pace.

The fundamental issue that needs to be addressed is an increase in supply of new, affordable housing for first-time buyers. While any tax relief would no doubt be welcome in the short-term, the long-term benefits to the market of this move in isolation would be fairly minimal.

If you are thinking of buying your first home, our first-time buyer’s guide has lots of helpful hints. Alternatively, get in touch today on 0131 667 0232 or by emailing property@warnersllp.com and one of our team will be delighted to help.