What costs a Scottish castle?

02 November 2020

The UK property market has long been an attractive proposition for wealthy overseas investors. Over the longer term, the UK has generally been politically stable and economically safe, and property prices have steadily increased.  

Property tax changes 

Since 2013, there have been significant changes in the taxation of UK property ownership. Many of the early changes were targeted at offshore owners of residential property, with the introduction of the annual tax on enveloped dwellings (ATED) and the non-resident capital gains tax charge (NRCGT).  More recently the taxes on income and gains on all UK real estate have been aligned for UK and overseas owners so that broadly, overseas investors will generally now   be subject to the same UK tax exposure as UK residents.

London residential property still carries a certain prestige and generates most receipts from ATED. But with tax charges reducing financial returns, investors are increasingly looking for value for money in other regions of the UK.  

Property transaction taxes

For non-resident individuals or companies, income and capital gains taxes are the same across the UK.  However, land and property transactions taxes are largely devolved to the home nations - Scotland, Wales, and England and Northern Ireland. For residential property, Scotland has proven to be attractive to overseas investors, whether it be a rural estate or a city centre flat. 

But comparing Scotland’s land and buildings transactions tax (LBTT) and England’s stamp duty land tax (SDLT), which also applies in Northern Ireland, identifies significant differences in the rates and bands.

The table below compares the respective rates for residential property transactions from 1 April 2021:


LBTT SDLT
Rate Consideration Consideration
0% From £0 to £145,000 From £0 to £125,000
2% £145,001 to £250,000 £125,001 to £250,000
5% £250,001 to £325,000 £250,001 to £925,000
10% £325,001 to £750,000 £925,001 to £1.5 million
12% over £750,000 over £1.5 million

 

Both jurisdictions are currently offering an extended nil rate band until 31 March 2021 – For LBTT this covers the first £250,000 for residential  properties, while under SDLT the first £500,000 is charged at nil.

Second homes, properties for letting and company purchasers attract additional charges under both regimes. The additional dwelling supplement (ADS) in Scotland is currently 4 per cent, while the equivalent under SDLT is 3 per cent.  

From 1 April 2021, under SDLT, non-residents will be charged 2 per cent over and above the rates set out above.

What it means

Put in monetary terms, an investor buying a £500,000 rental property in Scotland will pay LBTT of £41,250 (£43,350 after 1 April 2021, when the nil rate extension disappears). SDLT on an equivalent priced property in England would be £15,000 (£40,000 after 1 April 2021, including the 2 per cent surcharge for non-residents).  

At the higher end of the market a £3 million property in Scotland will attract LBTT of £438,350, while a property in England at this price after April 2021 would cost £423,750 in SDLT.

The introduction of the SDLT surcharge for non-residents will narrow the gap between LBTT and SDLT but with Budgets still to come and a Scottish Parliamentary election in May 2021, there is still time for things to change.

For more information please contact Shirley McIntosh.