Scottish government

Scottish property tax creating a stagnant market, expert warns

Scotland's alternative to stamp duty is creating a stagnant property market by slowing high-value sales, an expert has warned.

Alasdair Humphery, lead director for Scotland at JLL, said Land and Buildings Transaction Tax (LBTT) returns for both commercial and residential property are expected to fall well short of the targets outlined when it was first announced in 2013.

Recent figures from the Scottish Property Federation found that LBTT generated revenues of £481.1m in 2016/17, £56.9m (10.6%) less than the Scottish government had originally forecast.

“We’ve now passed the two-year anniversary of LBTT and it is clear to see a negative impact on Scotland’s property market,” said Alasdair.

“For too long, commercial property receipts have been used to balance out an underperforming residential market, caused by heavy-handed taxation, particularly at the middle and top ends of the market.”

The Scottish government raised £177.3m from commercial LBTT in 2016/17, down 17.2% on the previous year (£214.2m).

The LBTT shortfall comes despite a boost from the introduction of Additional Dwelling Support (ADS) in 2016, which taxes commercial and residential owners on second properties.

Excluding the new ADS, LBTT revenue for 2016/17 was just £389.8m, still £26.2m (6.3%) less than in the 2015/16.

“Homeowners are facing further obstacles to sell their homes in the £325,000 to £750,000 bracket, with a 10% tax handed to buyers,” added Alasdair.

“Mid-market transactions – which are typically the life blood of any property market – have been restricted by this broad banding, making it hard for people to either buy larger homes or downsize to smaller ones.

“By revising the threshold currently in place across sales from £325,000 to £750,000, we would most likely see an increase in buyer activity, to the benefit of the tax pot and the property market.”

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