Don’t let London property prices dictate changes to LBTT Threshold

09/01/2020 11:40:00

By Gregor Cope

The Scottish property market is thriving and the end to uncertainty over Brexit augurs well for continued growth into 2020 and beyond.

Irrespective of how you voted, the election of a majority government has brought some stability to the sector across the UK.

There are, however, some residual concerns about the new administration’s plans to kickstart the housing market in London and its potential impact north of the border.

It would be worrying if the Chancellor, Sajid Javid, opted for over-generous tax giveaways aimed at the south-east without giving due consideration to how they might affect the rest of the country.

His vaunted £500,000 starting threshold for an English Stamp Duty and Land Tax (SDLT), for example, might be helpful in boosting property sales in London and the south east but would not be helpful here.

A senior industry figure warned this week that allowing London property prices to dictate the new threshold would create a two tier system, effectively collapsing the Scottish property market which already has the highest stamp duty rate - known as Land and Buildings Transaction Tax (LBTT) - in the UK.

The Scottish Government introduced the LBTT as a copycat measure for a similar levy introduced by the Conservative Government at Westminster in 2015.

It imposes a charge of 2% on homes worth more than £145,000 up to 12% on those which sell for more than £750,000. Buyers of holiday homes, buy-to-let properties and other second homes are charged an additional 4% under the Additional Dwelling Supplement (ADS).

In Scotland the market is entirely different from London and the south-east; houses are more affordable compared with average earnings and there’s a shortage of rental property.

 In the major cities such as Glasgow, it can be difficult to secure a rental property. Students, professionals, foreign nationals and those on benefits are all competing for the same available rental lets.

The LBTT had an inglorious start with ministers being forced to revise projected revenues up to 2021 from £1.8bn to £962m, a drop of 46%.

Any school pupil studying economics will tell you that when taxes rise, consumers change their behaviour accordingly, so it was no great surprise that many homeowners, faced with a massive increase in the cost of moving to a new house, opted to stay put.

The greatest negative impact was on the purchase of second homes and buy-to-let properties. Tax revenues are small compared with the high risks of restricting liquidity in the buy-to-let market and the knock-on effects on other businesses that rely on a buoyant property market.

Some landlords with highly geared portfolios made losses and were in the position of having to pay tax on those losses. This has happened at a time when they had to weather changes to the Private Housing (Tenancies) Bill, based on improving tenant rights with no consideration for the financial risks and challenges faced by landlords from rogue tenants.

Many landlords took the view that they’d had enough. The LBTT and the 4% ADS are part of a bigger picture which also includes significant reductions in mortgage interest relief and the removal of 10% ‘wear and tear’ relief.

With any further reduction of available lets in the private rented sector, the Scottish Government will be forced to meet that housing shortage at considerable cost to taxpayers.

Gregor Cope is a Director of Scottish Property Centre Shawlands

For more information about properties to buy and rent in your area, call your local Scottish Property Centre branch or visit www.scottishpropertycentre.net

 

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