Statistics released by Revenue Scotland show that land and buildings transaction tax (LBTT) raised £35.1m more than expected in its first year of operation to 31 March 2016.
More interesting is the split of revenue between residential and non-residential transactions. While non-residential transactions raised over £68m more than anticipated, residential revenues produced a shortfall of over £33m.
The changes made to the structure and level of residential rates of tax have had an impact on the figures, with buyers bringing transactions forward, both before the introduction of LBTT on 1 April 2015 and before the additional dwellings surcharge went live on 1 April this year. Trends are therefore difficult to see clearly at this stage.
Changes to stamp duty land tax in the rest of the UK announced in the March budget again brought the spectre of further competition in property taxation between Holyrood and Westminster with George Osborne extending the progressive system of transactions tax to non-residential property. LBTT already operates in this way, but the rates introduced for SDLT are higher with a top rate of 5 per cent compared with 4.5 per cent for LBTT.
In the past 18 months we have already seen the impact of changes to the system and rates on one side of the border on the other. The progressive approach was first introduced in Scotland and then quickly copied south of the border at rates which were then matched in the north. The additional dwelling supplement of 3 per cent on residential transactions also quickly made the transition from south to north.
So will the increased rates of SDLT for non-residential property be matched in Scotland? Lower rates in Scotland might attract much needed investment in the commercial market, but the current differential is probably not sufficient to sway investors, particularly with continuing uncertainty over the economy and the constitutional debate. At the lower owner/occupier end of the market a £500,000 property would cost only £1,750 less to buy in Scotland than in England, but even at a purchase price of £40m, the saving would be less than £200,000.
Property has become a clear target for raising public finance with reviews of council tax and business rates being promised by the major parties. Higher-value residential properties will undoubtedly attract higher council tax bills than at present and the impact of the LBTT changes will become more apparent as things settle down.
The current differential between non-residential SDLT and LBTT rates is not significant and the new Scottish Finance Minister, whoever that may be, may therefore see an increase as an easy win in November’s budget.
For more information please get in touch with Shirley McIntosh, or your usual RSM contact.