Land and buildings transaction tax (LBTT) replaced UK stamp duty in Scotland from 1 April 2015.
LBTT is applied to transactions relating to commercial and residential property and land. The charge applied in each specific instance relates to the price of the property.
From 1 April 2016 the Scottish Government will introduce a supplement of 3% on additional residential homes, such as holiday homes and buy to let properties. The 3% charge will be on the whole value of the property on transactions on or above £40,000, and will be levied in addition to the current LBTT rates.
In March 2016 an amendment was introduced that provided relief from the surcharge for the purchase of 6 or more properties.
There has been a lot of speculation about what effect these imminent changes will mean for the Scottish housing market in general and buy-to-let in particular.
What will the effects be?
The Scottish Property Federation (SPF) reported this month that the value of Scotland’s commercial property transactions rose to a 4 year high of £3.5 billion.
David Melhuish, director of the SPF, commented:
“The number of transactions looks to be levelling off, but it is important to see growth taking place at a sustainable rate.”
In July 2015, the Edinburgh Solicitor’s Property Centre (ESPC) as well as other Scottish property sources stated that the introduction of LBTT led to a spike in prices and then a fall back in sales. Many are speculating that the April changes may lead to a similar upsurge in sales as buy-to-let investors try to beat the surcharge.
At the beginning of this month, the ESPC detailed that interest and activity in the buy-to-let sector remained strong despite the incoming changes. A survey of attendees at one their recent events (albeit a captive audience) found that:
58% considered buy-to-let to be a long-term source of income
50% were aged 35-44
11% were aged 55-64
11% were buying a property for a child
11% were looking to expand their portfolio.
40% of attendees were looking to let out a new property in less than 3 months, which may indicate a desire to avoid the surcharge. However, 20% of those surveyed were looking to start renting out their new property in between 3-6 months and 25% were looking at 6 months to a year.
Orlaith Brogan, head of ESPC lettings, said:
“Many people in their thirties and forties see property as a viable long term option and these short term change as something they can overcome.”
The Royal Institution of Chartered Surveyors in Scotland (Rics) reports that less than 20% of its members expected sales to increase in the coming months as the rush to get in before the tax rise begins to slow. This reflects the Rics prediction for a slowdown in the housing market across the UK.
We can help
Taxation in Scotland is undergoing a steady shift as more and more responsibility moves from Westminster to Holyrood. These changes will affect the vast majority of Scottish people and businesses, so it is important to keep up with them as they happen.
Contact Alan Mitchell at firstname.lastname@example.org today if you have any questions about purchasing property or the changing taxation landscape of Scotland.