The holiday, it seems, is over. Yesterday the Scottish Government announced that the Land and Buildings Transaction Tax (LBTT) threshold reduction, known as the “stamp duty holiday,” will end, as planned, on 31st March 2021. This means that the zero tax threshold on LBTT – Scotland’s version of stamp duty – will drop from £250K back to £145K in a matter of weeks.
It was hard to conceal my huge disappointment at the news. After all, the LBTT relief was created to boost the Scottish property market and purchasers during the Covid-19 pandemic. Which, we are still in the midst of. Working from home, as recommended by the Government. School closures and home schooling. Travel bans. National lockdowns and social isolations with no end date in sight. And let’s not forget that the number of people who’ve tragically died during the outbreak has now exceeded 100,000 nationwide.
It’s easy to see that the economy is going to take some time to recover. And in the property world, market conditions are likely to remain challenging throughout the year. So why end it now? The property tax holiday created buyer and seller confidence liked we’d never experienced before in Scotland. From August to October last year, the ESPC witnessed a 44.4% year-on-year increase in new listings in Edinburgh, the Lothians, Fife and the Borders. Knight Frank reported that offers in Edinburgh alone increased by a whopping 141% in the first two weeks of August, the number of new prospective buyers rose 165% and viewings increased by 42%.
Which is why the end of LBTT holiday is a cause for concern; I personally would have preferred to see an extension or gradual phasing out. With just over two months to go, it could firstly result in transactions falling through as buyers get cold feet, concerned they won’t be able to complete before the end of March cut-off date. Just one day over this date could results thousands of pounds extra due in LBTT, which many buyers simply won’t have. I have seen first-hand the difference a LBTT holiday can make financially as my close friend saved himself over £5,000. This much needed money has gone a long way to a new bathroom in his new home.
Then there’s the huge pressure on estate agents, surveyors, lenders and solicitors. I’ve highlighted before that lockdown created an astronomical backlog of cases that estate agents, surveyors, and solicitors needed to clear while dealing with a new wave of requests. Additionally, the property market saw 140,000 more sales in the system in the second half of last year compared with 2019. This increase put huge pressure on many professionals in the housing market. As a result, delays were – and remain – inevitable for everything from getting mortgages approved to getting valuations done.
I particularly feel for the lenders who are already doing their best with remote working challenges. Many home buyers are having anxious delays as their mortgage lenders battle through the backlog of applications. Such delays could easily push purchasers over the LBTT holiday deadline, risking a failed sale or struggle to find extra cash.
I also fear this news could also quickly create a loss of momentum in what has been a buoyant market – as well as a decrease in property prices.
The reduction in LBTT created some of the biggest property sales for years as homebuyers rushed to buy their dream homes. It also resulted in significant increases in revenue for the Scottish Government in what has been a time of severe economic decline. I’m sure many in the Scottish property industry will be scratching their heads, questioning why the government doesn’t want this financial support which would have been so readily available.
By not extending this holiday, it is a wasted opportunity to continue the all-important property market recovery in Scotland and bolster financial support to our nation. It was also a missed opportunity to boost the First Home Fund, supporting Scots make that first step on the property ladder. And, whilst first-time buyer relief will remain, I’m sure many of my industry professionals will be frustrated that the Scottish Government wasn’t more ambitious and forward thinking.
LBTT is a property tax structured in tiers, meaning buyers pay different rates depending on the tax band the property price fits into. In Scotland, UK Stamp Duty Land Tax (SDLT) was officially replaced by LBTT on 1 April 2015 after the Scottish Government received greater devolved powers. LBTT is applied to residential and commercial property purchases.
The LBTT depends on the property price. There are various LBTT bands, each with a different % tax applied to each band.
The LBTT holiday, which came into effect in July 2020, meant that tax thresholds were as follows:
From 1st April 2021, they will go back to:
Effectively, you won’t have to pay any LBTT on the value of the property up to £250,000 and if the property exceeds this value you only pay LBTT on the amount above £250,000. However, from April, LBTT will be applicable on property prices £145,000 and higher.
To benefit from these savings, your sale must have been completed by 31st March 2021 – this means, the purchase price has been paid over to the seller and the seller has the legal ownership and keys. Our advice is to consult your solicitor to see if you’ll make the cut-off date