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Swinney’s land tax aids first time buyers, but hits middle classes

John Swinney’s new property tax is unlikely to prove popular with middle class families wanting to move up the housing ladder.

They will be hit by a new tiered levy while first time buyers will be better off. The new land and buildings transaction tax (LBTT) is expected to help young people get on the property ladder but critics say middle income earners will struggle with the new 10% rate on higher-priced properties.

The finance secretary may also have blown a big hole in commercial property development in Scotland by imposing higher taxes on deals than south of the border. Experts in Scotland claimed that the rates announced in the Scottish budget could have an adverse affect on property investment and development deals.

LBTT will replace Stamp Duty and Land Tax in Scotland from 1 April next year and will introduce a progressive tax rate.

Under the new rules first time buyers are likely to benefit as no tax will be levied for the first £135,000 of a property. But thresholds will be 10 per cent for properties costing more than £250,000 and 12 per cent for properties worth more than £1million. The Scottish Property Federation says these thresholds are likely to hit Aberdeen and Edinburgh hardest, due to both cities having higher than average house prices.

There was a more welcoming response from the home building industry which was delighted by an extra £125 million of financial transactions for the housing sector.

Philip Hogg, chief executive of trade body Homes for Scotland, hopes the extra money may help to revive the Help to Buy scheme in Scotland after its budget for the year was fully allocated by the summer.

He was pleased to see support at the lower end of the market to assist first time buyers.

But the SPF also has warned that under the new structure, commercial property transaction consideration over £350,000 will be charged in the highest tax band of 4.5 per cent.

This means that developers behind a £23 million office transaction would pay £85,000 tax more than under the current rules in the rest of the UK. A major shopping centre transaction costing £48million might pay some £230,000 more in tax.  The SPF predicts that there is likely to be a value impact for major commercial property assets in the near term.

There was an argument for imposing higher capital gains taxes on profits from sales rather than tinker with taxation on transactions but the budget announcement confirms the preferred option.

David Melhuish, director at the SPF, said: “Although the Finance Secretary may be right to say that 95% of individual commercial property purchasers will pay no more than before, the problem is that the majority of commercial property sales are for more than £2million – and these investors can choose where they wish to invest.

“It is at this level that the government receives the bulk of its revenue and we do not wish to be seen to be less competitive or attractive than other parts of the UK to retain the investment of these purchasers.

“The property markets in Scotland have improved over the last year but we are concerned that the higher rates proposed for LBTT are too penal, and that this may have a negative impact on future growth in the property markets and potentially for future development investment as a whole.

“If Scotland is to thrive in a competitive property investment market, we do not want to risk being seen as a high tax environment, as this could dent investor confidence due to fears about further future tax increases.”

 

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