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Miller Samuel Hill Brown Solicitors Blog

From time to time we will post news articles and announcements relating to the firm and to various legal issues that may be of interest to you.

LBTT and ADS - A Perfect Storm?

As the winter weather approaches, we consider the outlook on the Scottish property market by asking whether Land and Buildings Transaction Tax (LBTT) and the newly introduced Additional Dwelling Supplement (ADS) have combined to create the perfect storm.

LBTT replaced Stamp Duty Land Tax in Scotland from 1 April 2015. Far from a rebranding, LBTT both amended the levels of tax payable on property transactions and introduced a new tax. The new ADS, which targeted buy-to-let investors, introduced an additional 3% levy on the purchase price for all non-natural purchasers and individuals who already own another property worldwide. The “second-home” tax can only be avoided if an individual is replacing their main residence.

The introduction of ADS brought Scotland into line with legislation which was concurrently being introduced by the UK Government. However, amendments to LBTT thresholds drastically differentiated Scotland’s property tax regime from that of its neighbours.

Whilst properties between £250,000 and £925,000 attract 5% tax in the rest of the UK, Scotland opted to increase the rate to 10% for properties between £325,000 and £750,000; thereafter charging a whopping 12% for properties priced over £750,000. In the rest of the UK, the 10% rate only becomes applicable on property priced between £925,000 and £1.5 million, with the top band of 12% reserved for properties priced over £1.5 million.

In practical terms, this means that someone buying a £1 million property will pay more than £78,000 tax in Scotland compared with £43,750 in the rest of the U.K. Both tax bills would increase by an additional £30,000 if the purchaser owned any other property worldwide.

It has been reported that demand in Scotland for second homes and buy-to-let properties has halved. There has also been a 25 percent drop in demand for homes worth over £500,000 and a fall of 40 percent in demand for £1 million plus properties.

At the top end of the market, the media have also reported several cases recently where foreign investors have abandoned purchases in Scotland after learning of the huge tax bill. Further down the chain, there are concerns that if aspirational mid-market buyers are unable or indeed choose not to move, this will create blockages lower down and place more pressure on the price of the fewer homes that do come on the market.

Whether purchasers can’t afford to pay the tax or object to its perceived punitive nature, it is certain that the new tax regime is having an impact right across the market.

Under pressure from the property sector, the Scottish government has recently hinted at the possibility of a U-turn with Finance Secretary, Derek Mackay, stating in June of this year that “If there’s a case that an amendment of the current bands could help stimulate the housing market…then I will consider it.”

In the absence of any firm policy change, prospective purchasers will, for the time-being at least, have to weather the storm and hope that the outlook improves.

 

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