Revenue from residential land & buildings transaction tax (LBTT), including the extra tax on second homes, has exceeded a record £600 million, though it is likely to fall this year as the market softens.

Figures for the 12 months to the end of March 2023 were driven by what property agent Rettie describes as “rising prices and a relatively strong sales market”,

Receipts are expected to contract by around 16% in the year to 31 March 2024 as market activity dipped following a series of interest rate hikes.  

John Boyle, director of research & strategy at Rettie & Co, said: “Looking at the count of monthly LBTT receipts, there was a marked downturn from October onwards when interest rates and mortgage costs began to rise suddenly and steeply. With transactions likely to fall this year, this will impact on property tax revenue.”

Assessing the source of revenue, he said the uplift in prices meant more home buyers were paying the tax.

“When LBTT was introduced, more than 50% of transactions fell under the £145,000 threshold [when LBTT applies).  However, as house prices have risen, only around 37% now fall under the threshold.  

“So, while it was once the case that a majority of Scots wouldn’t pay a housing transaction tax, almost two-thirds of sellers (63%) will now be subject to LBTT.” 

In terms of geography, Edinburgh and what the firm describes as “prime transactions” over £750,000 remain strong engines of revenue.  Scotland’s capital generates an estimated 27% of LBTT revenue from 11% of the country’s house sales, while sales over £750,000 generate 22% of LBTT revenue from around 1% of overall transactions. 

Total LBTT revenue from Edinburgh was estimated to be over £128m in 2022/23, compared to the next highest area, Glasgow, which generated approximately £38m. The average LBTT bill in Edinburgh was £11,720, compared to £3,288 in Glasgow, and £3,062 in Aberdeen. 

The postcodes that generated the most revenue in 2022/23 were EH4 (including Barnton and Cramond), EH10 (including Morningside), EH12 (including Murrayfield), EH3 (including Edinburgh New Town), and G77 (including Newton Mearns). 

The highest average LBTT bill by area was in East Lothian (EH31 including Gullane) (at £37,000), followed by the Southside of Edinburgh (EH10) at £28,000, and North Berwick (EH39) at £27,000.

LBTT revenue generated by new build sales topped £100m for the first time in 2022/23.  Among the major homebuilders, CALA Homes generated the most LBTT receipts, at around 4% of all LBTT revenue despite accounting for less than 1% of total sales activity in the market. 

The highest average new build LBTT bill at any development was at The Old Course in St Andrews, which was over £325,000.