Just when you thought it was safe to go back into the buy-to-let market, the Scottish Government has imposed another tax burden on landlords.
From this month, the stamp duty surcharge on the purchase of second properties is rising from 3% to 4% north of the border.
The measure – that will not be introduced in the rest of the UK – was announced by Scotland’s Finance Secretary Derek MacKay in his budget speech in December.
It follows the replacement of Stamp Duty with the more draconian Land and Buildings Transaction Tax (LBTT) in 2015 and the phasing-out of mortgage interest tax relief on rental income, which also comes into full effect at the end of this month. Stress tests for buy-to-let mortgages have also been introduced.
However, losses suffered by landlords will mean that first time buyers and those moving up the property ladder gain.
According to forecasts, tax revenues raised from increasing the rate of Additional Dwelling Supplement (ADS) – the Scottish Government’s name for the surcharge - will be £2.3m in 2018/19, rising to £25.4m in 2019/20.
That additional income has allowed Mr Mackay to raise the zero-LBTT threshold for first-time buyers from £145,000 to £175,000.
Paul Burns, Director of Scottish Property Centre Cardonald, said: “Nobody likes paying higher taxes but there will be some winners with this month’s rise.
“Revenues raised through the ADS will help thousands of young people to buy their first homes and many others will be able to move up the property ladder and purchase a house worth up to £175,000 without paying any LBTT.”
The Scottish Government also makes the point that even with the new higher ADS rate, 80% of residential property bought in Scotland attracts a lower property tax than in the rest of the UK.
The ADS was introduced across the UK on April 1, 2016 and is payable when you’re buying a second residential property (in addition to your main home).
It means that people buying second homes or buy-to-let property currently pay an additional 3% - rising to 4% in Scotland on January 25 - on top of the regular LBTT rates.
LBTT is a tiered tax, meaning you pay different rates on different portions of the property price. It imposes a progressive levy on residential properties of 2% on homes worth more than £175,000 up to 12% on those which sell for more than £750,000.
The change means that a buy-to-let landlord purchasing a home for £250,000 will see their bill rise from £9,600 to £12,100.
For more information on how much you will have to pay contact your local branch of Scottish Property Centre and talk to one of our qualified estate agents.