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Scottish stamp duty changes on the way

Moves to replace stamp duty in Scotland with a new Land and Building Transactions Tax took a huge step forward last month. Finance Secretary John Swinney introduced a Bill into the Scottish Parliament that will push through the changes.

The current position

At the moment, house purchasers throughout the UK have to pay stamp duty land tax whenever they buy property. The rates are set by the UK Government and depend on the type and value of the property being purchased.

For example, in the case of residential land or property, there is an exemption for purchasers buying property worth up to £125,000. They do not pay any stamp duty, but purchasers buying property worth between £125,000 and £250,000 have to pay stamp duty of 1% of the purchase price. Properties worth between £250,000 and £500,000 have a stamp duty charge of 3%, and so on.

The ‘slab’ approach

One criticism of stamp duty is that it takes a ‘slab’ approach to taxation.

This means that if a property is valued above a particular payment threshold, stamp duty is charged at the higher rate on the whole value of the property. So someone buying a house at £140,000 would pay 1% stamp duty on the total (£1,400), but someone buying a house for £350,000 would pay 3% stamp duty on the whole amount (£10,500).

Scottish tax powers

The Scottish Government has been given limited powers to set and collect taxes in relation to the purchase or leasing of land and buildings and the disposal of waste to landfill, and has lost no time in using them.
In November it published the Land and Building Transactions Tax (Scotland) Bill, which will create a Land and Buildings Transaction Tax (LBTT) to replace the existing system of stamp duty land tax.
Land and Buildings Transaction Tax

According to the Scottish Government, LBTT will be a more progressive tax structure, in that the amount of tax paid will be more closely related to the value of the property.

“The changes we are proposing would give us the opportunity to better support first time buyers trying to get onto the housing ladder or families buying bigger homes that better suit their needs,” Finance Secretary John Swinney. “Rather than the current distortive ‘slab’ approach which sees people pay too much tax and distorts the market, we will ensure that taxpayers pay an amount more proportionate to the value of their property.”