It is now more than three years since land and buildings transaction tax (LBTT) was introduced in Scotland to replace stamp duty land tax (SDLT). Prior to its introduction on 1 April 2015, the structure and rates of the tax were published in November 2014. This encouraged a review of SDLT and significant changes were introduced in the rest of the UK in December 2014. The impact these changes have made south of the border has been widely reported.
A tax to reflect the Scottish property market?
The devolution of land and buildings transaction tax was seen as an important means of introducing more targeted rate bands and local control over revenues to reflect the very different property market north of the border. However, some critics have expressed concern at the impact of these rates on certain parts of the housing market, with those residential properties costing over £325,000 normally attracting significantly higher transaction tax charges in Scotland compared with England.
Those already owning their own home and wishing to move up the housing ladder are facing increased costs, albeit the zero-rate band was recently raised to £175,000 for first-time buyers. It has, however, been suggested that many homeowners, put off by higher costs of moving themselves, are choosing to extend or refurbish their existing property rather than move. The result is a shortage of properties to buy, higher property prices, and increased competition.
A significant change was made to LBTT in 2016 in the form of the additional dwelling supplement (ADS), which adds a 3 per cent surcharge to LBTT for those buying second homes and buy-to-let residential properties. Similar to its SDLT equivalent, the intention was to reduce the attraction of the buy-to-let market to investors and release more properties for those wishing to start on the housing ladder.
The latest Royal Institution of Chartered Surveyors (RICS) survey suggests that there has been a resulting fall in the number of properties available to rent in the Scottish market. But demand remains strong due to the lack of housing to buy and therefore rents are expected to continue to increase. This trend may be exacerbated by landlords passing on some of the higher costs they now face, including the effect of other tax measures.
Despite all of this, statistics published for July 2018 show an overall increase in the volume of residential transactions across all rate bands compared with the first half of 2018. The total LBTT receipts from residential property for July were £36.1m , with ADS contributing £11m of this total. Total LBTT receipts for July were lower than June, but this was due to a fall in the tax generated by non-residential properties.
So while LBTT receipts are holding up in the residential market, some may argue that this belies the underlying trend of supply shortage, high rents and increasing prices. First-time buyers in cities can particularly struggle to find affordable properties and even the new first-time buyer relief introduced earlier this year offers only a small saving (a maximum of £600).
As in England, the Scottish Government wants home ownership to be an achievable dream, but it’s not clear that the current form of property transaction tax is helping. Until the housing shortage is addressed, however, the need for the Scottish Government to raise revenue suggests that LBTT is not likely to change any time soon.