The impact of LBTT in Scotland

Scottish Government’s LBTT revenue has fallen, with residential property revenue significantly down while second homes tax now accounts for nearly a quarter of all LBTT revenues in 2016-17. Land Business Transaction Tax (LBTT) replaced UK Stamp Duty in Scotland in April 2015, with the Scottish government claiming that nine out of 10 taxpayers would be better or no worse off under the new system. Official figures released by Revenue Scotland and analysed by the Scottish Property Federation (SPF) show LBTT revenue has fallen from 2015 to 2017.

Looking at the wider picture, it appears that the newest LBTT tax, the Additional Dwelling Supplement (ADS), has ‘saved the day’ providing 20% of all LBTT revenue in 2016-17. With a mixture of landlords and second home buyers still purchasing property despite ADS. In spite of this, the Scottish Government is down £82 million on original forecasts after the first two years of LBTT. This explains the finance secretary Derek Mackay, already reducing estimates for the tax by more than £750m over the lifetime of the current parliament.

Amazingly under the current thresholds, transactions between £145,000 and £325,000 account for over 80 per cent of taxable sales, yet they contribute less than 30 per cent of revenue. The next price bracket up only accounts for just over 15 per cent of taxable transactions but contributes well over half of the total revenue raised. The top 1 per cent of transactions, less than 500 sales per year, raise more tax for the government than the 31,000 transactions between £145,000 and £250,000. Leading to calls for a change in the thresholds. David Melhuish, director of the Scottish Property Federation said: ‘If the 10% residential LBTT threshold could be raised to £500,000 from its current level of £325,000 we believe this would stimulate more activity as it would help transactions through alleviating the tax burden for this level of the market.’

At West, we have certainly noticed ADS effecting both second home and buy to let property sale prices in Argyll. It will be interesting to see how the market is, and will continue to be, influenced by these relatively recent tax changes.