The current property market is experiencing a flurry of activity as the mass homeworking experiment created by the pandemic has encouraged a reassessment of lifestyles. Parts of Scotland are proving attractive as a result. But if you are thinking of relocating to Scotland, there are tax implications to consider.
Property transactions in Scotland are subject to Land & Buildings Transactions Tax (LBTT). This is similar to the Stamp Duty Land Tax (SDLT) that it replaced, but there are some differences, particularly in the rates charged. Both regimes are currently offering increased nil rate bands on residential properties until 31 March 2021.
Under SDLT the first £500,000 is charged at zero per cent, then up to £925,000 the rate is 5 per cent, 10 per cent is charged on the next band to £1.5m and thereafter the rate is 12 per cent. However, for Scottish residential properties, the nil rate band applies up to £250,000, then 5 per cent up to £325,000, 10 per cent up to £750,000 and thereafter 12 per cent. This means someone selling a property in England for £500,000 and buying a Scottish property for the same amount would be faced with a LBTT bill of £21,250.
Another important difference is the additional tax payable where more than one property is owned. Under the SDLT regime the higher rate for additional properties is 3 per cent, whereas in Scotland the Additional Dwelling Supplement is 4 per cent. When replacing a main residence, the tax isn’t paid, but if there is a delay in selling the old property, it must be paid and then reclaimed. Under SDLT the claim can be made where the old property is sold within three years, however, in Scotland the deadline for selling the old property is only 18 months.
Relocating to Scotland will also expose you to Scottish Income Tax, charged broadly on income from employment, self-employment, pensions and rental properties. For income up to around £27,000 the tax paid in Scotland is currently less than in the rest of the UK, but with a 41 per cent higher rate band starting at taxable income of £43,430 and additional rate tax of 46 per cent above £150,000. Those earning London salaries could soon notice a difference in their tax bills.
While the Scottish government may be the beneficiary of these additional taxes, it is not all one-way traffic. Some of the properties coming to market are former buy-to-let properties, with investors selling up due to erosion of investment returns following tax changes in recent years. A Scottish property investor switching to equity investment will pay tax on their dividend income at UK rates to the Westminster government, as opposed to the Scottish tax rates on their rental income to the Holyrood government.
Aside from tax, there is the lower cost of living and free university education to consider, not to mention the beautiful scenery, but then I might be a bit biased…