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Support for new ‘Stamp Duty’ Tax

The Scottish Parliamentary Finance Committee has supported the general principles contained in a Bill that will introduce a new Land and Buildings Transaction Tax into Scotland – replacing the old stamp duty tax.

The Land and Buildings Transaction Tax (Scotland) Bill is the first of three Bills that are being put forward by the Scottish Government following the devolution of new financial powers to the Scottish Parliament in the Scotland Act 2012.

What is stamp duty?

Stamp duty land tax is a tax that has to be paid on most property or land transactions in the UK. Most people come across it when they buy a house, and it can add quite a lot to the costs.

At the moment, if you buy a house for anything up to £125,000 the stamp duty rate is 0% – so you pay nothing. 

If you pay between £125,001 and £250,000 stamp duty becomes chargeable at 1%. This means that for a purchase price of £125,001 – only £1 above the threshold – you will have to pay an extra £1,250.01.

‘Slab’ structure

This way of structuring the tax is known as a ‘slab’ structure. It continues throughout the current stamp duty thresholds, which are (for residential properties):

  • Properties costing £250,001 – £500,000 are charged stamp duty at 3%
  • Properties costing £500,001 – £1 million are charged at 4%
  • Properties costing over £1 million – £2 million are charged at 5%
  • Properties costing over £2 million are charged at 7%
  • Properties costing over £2 million bought by corporate bodies are charged at 15%

So someone buying a house for a price of £2,000,001 would pay 7% stamp duty on the whole amount. It would cost him £140,000.07, whereas a house worth £2,000,000 would cost only £100,000.05 in stamp duty.

This slab structure has been heavily criticised as being unfair.

The Land and Buildings Transaction Tax (Scotland) Bill

The Land and Buildings Transaction Tax (Scotland) Bill is designed to tackle this unfairness by bringing in a ‘progressive’ tax system instead. 

The new structure will mean that only the proportion of the price above the relevant thresholds will be liable to pay the higher rate of tax. The rates of the new tax have not yet been set, but if they remain the same as at present then the purchaser in the example above, with a house worth £125,001, would pay stamp duty only on the £1 above the level of the nil rate band.

According to the Bill, the new system is likely to include a nil rate band and at least two other bands.

Support for the Bill

The proposal has been welcomed by the Finance Committee as “more equitable”.

“We are pleased to support the general principles of the Bill that introduces a fairer, more progressive approach to ‘stamp duty’ as well as addressing the issue of tax avoidance on the buying and selling of land and property in Scotland,” said Finance Committee Convener Kenneth Gibson MSP.

The Law Society of Scotland has also expressed support for the Bill.

“We strongly support the replacement of the slab system of stamp duty land tax, which many perceive as unfair due to the steep rise in tax for properties just above the thresholds,” said Isobel d’Inverno, convener of the Society’s Tax Law committee. “This distorts the market by keeping prices artificially low and gives rise to tax avoidance. We are certain that the proposed new progressive structure will be fairer and simpler for those buying a house.”