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Research March 2015

Land & Buildings Transaction Tax

Land & Buildings Transaction Tax March 2015 Research

A deeper look at the changes to residential st

On the 21 of January 2015 the Deputy First Minister confirmed to the Scottish Parliament that the tax rates on residential property had been reviewed and revised. As st such, the new Land and Buildings Transactions Tax (LBTT) will be introduced on 1 April 2015 in Scotland, replacing the UK Stamp Duty Land Tax (SDLT). Initial impact The cost of a residential property above £333,000 will become more expensive upon the implementation of the new taxation, with the fiscal impact becoming greater the higher the purchase price. For example, a £500,000 property will incur a tax liability of £23,350 compared to that of £15,000 previously, a difference of £8,350. At the higher end of the scale, a £1m property will be incurring a cost of £78,350 compared to £43,750 previously making a difference of £34,600. The Edinburgh market is seeing an increase in activity leading up to the introduction of LBTT but it is envisaged that April will be a quieter trading month. This is due in part to the Easter School holidays and LBTT, thus buyers and sellers will take a while to adjust to the new tax. However, given the pent up demand for prime property in Edinburgh, the market should recover through the summer months. On the other hand, the Highland market is completely different to that in Edinburgh, Banchory and other parts of Scotland in that it can be more seasonal. Buyers, who would have traditionally waited to spring/summer time, are now completing deals in advance of the change to LBTT, with most of the activity in the market being at the £400,000 - £600,000 level. The detail The tax will have implications for much of Scotland, particularly in the major cities of Edinburgh and Aberdeen where the average house price is substantially higher than the £165,903 national average at £225,054 and £212,956 respectively, based on January figures from Registers of Scotland. The table below outlines the changes in both the trigger prices and the tax liability at those points. As with income tax, the liability will increase progressively with price. st

Banding and transaction tax rates before and after 1 April 2015 Purchase price of residential property

UK SDLT (Progressive Tax)

Purchase price of residential property

Scotland LBTT (Progressive Tax)

£0 - £125,000


£0 - £145,000


£125,000 - £250,000


£145,001 - £250,000


£250,000 - £925,000


£250,001 - £325,000




£325,001 - £750,000




£750,001 +


Source: The Scottish Government

“There is no doubt that the looming 1st April date has seen a flood of activity in the Edinburgh City market especially for properties with values in excess of £500k. In the last two weeks we have placed in excess of 14 properties under offer including a number with values over £1million.” Blair Stewart – Partner, City Estate Agency, Edinburgh

The graph below shows the implications of both the SDLT regime and the new LBTT. It can clearly be seen that the new tax, at the lower end of the purchase price, follows the same tax liability as before up until £333,000, after which the liability increases at a far greater rate than under SDLT. Comparison of tax liability with “old” and “new” LBTT


LBTT Liability


Tax Liability

£70,000 £60,000 £50,000 £40,000 £30,000 £20,000 £10,000

“It is difficult to say what lies ahead, particularly with the General Election likely to stall the market nearer the time. I suspect that at the higher end, the change in LBTT may be reflected in buyer’s offers, in that they take this extra cost into account and factor it into what they are prepared to pay.” Kevin Maley – Partner, Estate Agency, Inverness




Source: Strutt and Parker

Conclusion It had been predicted that the Scottish market would see a resurgence following the referendum, yet discussions of Scotland’s future still continue with many seeing the referendum as the beginning of a new political landscape with an energised electorate who demand more powers for Scotland. It is difficult to foresee what will happen in the future, particularly with the General Election likely to hold the market back. Properties at the higher end of the market will be impacted greatest, incurring a higher tax burden than before. The hope is that as buyers and sellers adjust to the change over the following months, market activity resumes as normal. However, we do expect the markets to have responded with an increase in transactional activity in the run up to the st 1 April. We will not know the full extent to activity change until the Q1 figures are released and the after effects of the tax until the release of Q2 data by the Registers of Scotland.

Contact us Stephanie McMahon Head of Research [email protected] +44 (0)20 7318 4673

Blair Stewart Partner, Edinburgh [email protected] +44 (0)13 1718 4480

Strutt & Parker is the sole UK member of Christie’s International Real Estate. This places us at the heart of the world’s leading network of luxury real estate specialists, connecting our expertise, service ethos and UK coverage to high net worth individuals and property markets globally. Copyright Strutt & Parker, 2015. All rights reserved. No part of this publication may be reproduced or transmitted in any form without prior written consent by Strutt & Parker. The information contained herein is general in nature and is not intended, and should be construed, as professional advise or opinion provided to the user, not as a recommendation of any particular approach. It is based on material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors.