John Swinney announced his spending plans and draft budget for 2016-17 for Scotland yesterday. As I expected, he has followed George Osborne's Autumn Statement last month and slapped a 3% stamp duty surcharge on buyers of buy-to-let properties and 2nd homes in Scotland. (See my earlier post on why I don't think Glasgow buy-to-let investors should be too concerned by this).
The table below, taken from the Budget summarises the proposed changes to the Land and Business Transaction Tax* ("LBTT") for additional home purchases. The changes come into effect from April 2016 and affects all purchases over £40,000.
So what does this mean in practice. I have pulled together the table below to show the amount of LBTT that would be due today under the current system and what it will be post April 2016 so you can see the difference. For a property at £125,000 (the average in Glasgow) the change will result in an additional cost of £3,750. Not nice, but I don't think end of the world.
For properties under £40,000 there is no change and no LBTT to pay. For properties between £40,000 and £145,000 the stamp duty will be 3% vs nothing at the current rates and at £250,000 the effective rate is 3.8%.
The stated reason the Scottish Goverment is bringing in this levy is to encourage first time buyers at the lower end of the market which they believe are being crowded out of the market by buy-to-let investors. I don't believe this measure will actually make a big difference for first time buyes. One of the main reasons first time buyers are struggling to get on the property ladder is the high property prices relative to stagnant salaries and the difficulty in getting mortgage due to tighter lending restrictions. High prices are caused by inability in Britain to build enough new housing to meet the growing demand, which this tax does not address. Indeed a report today compiled by the Centre for Economics and Business Research (CEBR) predicts that prices of homes across the country are predicted to jump by 50% in the next 10 years as a shortage in housing supply continues to push up prices.
The Scottish Government expects this tax to raise between £17 million and £29 million in 2016-17.
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*Note the Land and Business Transaction Tax ("LBTT") replaced Stamp Duty Land Tax ("SDLT") in Scotland in April 2015.