The Scottish Government’s replacement for stamp duty is negatively impacting Scotland’s property market, with a slowing of high value commercial and residential sales creating a stagnated market, according to Alasdair Humphery, lead director of property firm JLL in Scotland.
Land and Buildings Transaction Tax (LBTT) returns for both commercial and residential property are expected to fall well short of the targets set by John Swinney when he introduced the tax as Finance Secretary in 2013. The tax came into force from April 1 2015.
The latest findings from the Scottish Property Federation found that LBTT in 2016/17, across all sectors generated revenues of £481.1m, £56.9m (10.6%) below the Scottish Government’s forecast, and only £65.1m more than the first year’s take.
The Scottish Government forecast in its 2016/17 budget that it would raise £538m from LBTT. This is despite current average monthly LBTT revenue standing at £36.5m.
The introduction of Additional Dwelling Supplement (ADS), which taxes commercial and residential owners on second properties, is thought to have boosted LBTT figures significantly, but not enough to meet targets. Excluding the new ADS, LBTT revenue for 2016/17 was £389.8m, £26.2m (6.3%) less than in 2015/16.
The Scottish Government raised £214.2m from commercial LBTT in 2015/16. In 2016/17 that figure was only £177.3m – a decrease of £36.9m or 17.2%.
LBTT was recently criticised in a study commissioned by the Scottish Government on the recommendation of the Scottish Fiscal Commission to explore model option for forecasting the housing market. The study found the modelling was “ill-suited” and “poor” with the tax very difficult to accurately forecast.
Alasdair Humphery, Lead Director at JLL in Scotland said: “We’ve now passed the two year anniversary of LBTT and it is clear to see a negative impact on Scotland’s property market. The latest Scottish Property Federation figures suggest that the most recent tax targets set by the Scottish Government have fallen short by around £60 million with commercial property receipts well down on last year’s tally and behind expectations. 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.
“Homeowners are facing further obstacles to sell their homes in the £325,000 to £750,000 bracket, with a 10 per cent tax handed to buyers. The tax has undoubtedly stifled within this bracket, especially in central belt cities where homes are more expensive. 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.
“At the top end of the market there is also a value discrepancy between Scotland and England, creating an uneven playing field. For instance, LBTT would place an extra £45,000 to the cost of a £1m home if the property is bought in Scotland rather than England.
“Aside from those already living in Scotland, another consideration is the impact higher taxation is having on people looking to relocate to Scotland for work, particularly those moving from London or other large English cities. When faced with increased income tax and stamp duty proportionately higher than in England, there is a risk that hefty taxation could deter high profile hires from relocating to Scotland.”