It was disclosed this week that the Conservative party will be challenging the 10 per cent tax on the purchase of homes above £250,000 imposed under the new Land and Buildings Transaction Tax (LBTT), which is set to come into force in April 2015.
Amidst warnings from experts that the high rate will fail to raise the sums predicted by the Scottish Finance Minister John Swinney, the Scottish Convservative party leader Ruth Davidson will be proposing an amendment to the legislation with a band of around five or six per cent on homes up to £500,000 instead.
The proposed amendment would bring Scotland more in line with the rest of the UK. Stamp Duty has just been overhauled by George Osborne throughout the UK, meaning buyers will now pay nothing on a house price up to £125,000, two per cent up between £125,001 and £250,000 and five per cent between £250,001 and £925,000. The higher 10 per cent tax in the rest of the UK is now imposed between £925,001 and £1.5 million, showing the clear disadvantage for buyers north of the border.
However, Scottish buyers will be able to take advantage of this tax cut until April when the LBTT is set to come into force. But the extra costs once LBTT is enforced will be considerable – for example, an average three-bedroom home in Edinburgh will have an additional cost of £3,256, yet people buying a home worth £185,000 will only save £200 under LBTT compared to Stamp Duty. For more expensive homes, for example a £510,000 house, buyers will have to pay £12,800 more than before, which is an increase of 83 per cent.
The director of strategy and research at estate agents Rettie, John Boyle, said that the changes to UK law will make it more likely the LBTT will “stall” Scotland’s upper property market, and in his opinion will fail to generate the £295 million that Mr Swinney had hoped for.
Mr Boyle said, “For those in the middle to upper ends of the housing market in Scotland, LBTT could be fairly punitive, whereas those at the lower rungs of the market are unlikely to save much. This has implications regarding whether LBTT can be revenue neutral in Scotland, as the Scottish Government intends, if it stalls the higher rungs of the market while doing little to stimulate the lower rungs”.
Furthermore, in Mr Boyle’s opinion, even prior to Mr Osborne’s cuts to Stamp Duty, a “less punitive band” would be more desirable, which would help those buying homes in the more expensive areas of Scotland like Edinburgh and Aberdeen.
It has been predicted that Scotland will see a housing market boom in the next three months before the LBTT comes into force, with people looking to buy property over £250,000 now, rather than pay more later. That being said, it will now be for First Minister Nicola Sturgeon to consider Ruth Davidson’s proposals, but it remains to be seen whether or not the amendments to the LBTT will be accepted by the SNP leader.
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