Land & Buildings Transaction Tax - 6 months on

Land & Buildings Transaction Tax ("LBTT"), the first tax to be introduced by a Scottish Parliament in 300 years, replaced Stamp Duty Land Tax on 1 April 2015.  In the months leading up to the momentous change, speculation was rife about the impact it would have on the housing market. So six months on, how has LBTT affected the market? 

First, let’s refresh ourselves on what changed. 

Hailed as a progressive tax, LBTT was designed so that that the level of tax charged rose in proportion to the value of property being purchased. Up until December 2014, Stamp Duty Land Tax ("SDLT") was charged on a "slab" basis meaning that if you purchased a property between £125,000 and £250,000, you paid tax at 1% on the whole price, with purchases between £250,001 to £500,000 paying 3% on the whole price.  The leap in tax at the £250,000 threshold caused difficulties for some buyers as it caused the tax payable to leap from £2,500 to £7,500 should they exceed the threshold by as little as £1!  

LBTT’s structure removed this financial cliff by replacing the slab basis with a percentage charge on the portion of the purchase price falling within fixed bands. Following the announcement of the move to LBTT by the Scottish Government, the Chancellor of the Exchequer changed the way in which SDLT would be charged, using the same percentage rates but different thresholds on each band.

The current position with SDLT v LBTT is as follows:-

Stamp Duty Land Tax            Land & Buildings Transaction Tax
Up to £125,000        0%            Up to £145,000         0%
Up to £250,000        2%            Up to £250,000         2%
Up to £925,000        5%            Up to £325,000         5%
Up to £1,500,000     10%          Up to £750,000         10%
Over £1,500,000      12%          Over £750,000          12%

These thresholds mean that, under LBTT, anyone purchasing a property priced at £333,000 or less would pay less tax than they would have done under SDLT.  Given that the average house price in Scotland in 2014 was £165,197, the average house-buyer in Scotland would be better off.  

So what about those purchasing property valued higher than £333,000? 

As the dawn of 2015 broke, the impending tax changes led to a significant rise in the number of transactions compared to the usual average for that time of year.  For the period January to March 2015, a staggering 56 properties valued over £1,000,000 were sold to beat the soaring tax bill. 

This boom in sales led to the market experiencing a somewhat predictable "hangover" for the prime market during the quarter April to June 2015, which saw sales slump for properties valued above £254,000 and saw just 3 sales where property was valued over £1,000,000.  However, during the same quarter, the Registers of Scotland reported that the average house price in Scotland rose 3.5% compared to the same quarter in 2014.

Overall, therefore, the market appears to have benefitted from the tax change and experienced a surge in activity. 

Recent reports suggest that the premium market is beginning to shake off the effect of the tax change.  Although the vast majority of £1M plus sales were completed prior to LBTT coming in to force, agents are now reporting an increase in activity in this market.  Sales in the region of £400-500k have adapted comfortably and the age old conundrum of 'supply and demand' in this bracket, combined with growth in the market further down the ladder, is creating a healthy lift in prices.