Holyrood forced to review 10% banding
Swinney signals u-turn on middle class property tax grab
He is expected to reduce or scrap his proposed 10% levy on homes costing between £250,000 and £1 million which has dismayed buyers, sellers and estate agents who believe it will cripple the top end of the market.
The Scottish Tories have demanded he halve the rate to 5% on properties costing up to £500,000 when he announces a review of the new Land and Buildings Transaction Tax (LBTT) on Wednesday.
Mr Swinney has been forced to revise his hastily produced replacement for stamp duty after being wrong footed by the Chancellor’s own reforms of the unpopular tax which charges 5% on properties between £250,000 and £925,001.
In Edinburgh, the so-called “Swinney tax” would add £3,256 to the tax paid on the average three-bedroom home.
Mr Swinney will confirm changes to the LBTT banding as part of the Scottish Budget Bill and following discussions with the Treasury.
Under his current plans, which come into effect in April, homebuyers would pay no tax on properties priced up to £135,000, 2% up to £250,000 and 10% between £250,001 and £1m. Any amount above £1m would be taxed at 12%.
The Scottish government claims that 90% of buyers in Scotland will be better off, or no worse off, than under the new UK regime.
But George Osborne’s surprise announcement in the Autumn Statement has thrown Holyrood’s plans into disarray.
The changes he has made mean the first £125,000 is tax free while a 2% rate applies between £125,001 and £250,000. The rate increases to 5% on the portion between £250,001 and £925,001; 10% on the portion between £925,001 and £1.5m; and 12% on the portion above £1,500,001.
Before the Chancellor’s announcement, anyone buying a house under £325,000 had an incentive to wait until LBTT kicked in on 1 April, but the chancellor’s stamp duty announcement brought that down to £254,000.
Estate agents have reported serious concerns among Scottish buyers and sellers, and a glut of properties at the top end of the market as sellers try to sell before the changes kick in. Some say it may stagnate the top end of the market and therefore fail to produce the tax returns Mr Swinney expects.
After Mr Swinney announced the LBTT Grant Davidson, associate for estate agent Rettie & Co, said after the LBTT was announced that those trying to sell were “clearly scared” and were considering dropping their asking prices to sell before the deadline.
Writing for Daily Business earlier this month, estate agent David Alexander wrote: “Many middle to upper market properties are already coming onto the market as home-owners try to beat the new LBTT rates, but with so many vendors competing against one another, inevitably some will fail to sell by the April deadline.
“With potential buyers then unwilling to pay the draconian tax rates, there will be a surplus of homes in this category, some of which may take years to sell, as is the case on the continent.”
Mr Alexander believes this could lead to a return of “reluctant landlordism”, when unsuccessful sellers have no alternative but to rent out their homes.
Mr Swinney today defended his proposals: “At the time of the UK Chancellor’s Autumn statement I said his imitation of my Scottish tax plans was the sincerest form of flattery. On the first occasion I’ve had to design a tax system for Scotland, the UK Government copied it instantaneously and applied it across the UK.
“At the time of my proposals – designed for the Scottish market not London house prices – 90% of homebuyers would have been better or no worse off, and 5,000 homes would be taken out of taxation all together, helping those at the lower end of the market.
“The Chancellor’s decision to introduce a new stamp duty system overnight, without warning and consultation, means that while 80% of homeowners continue to pay less tax or no tax at all under the Scottish system we now have the opportunity to review the rates and ensure they are right for Scotland.
“I will announce my conclusions to Parliament on Wednesday.”