Between January and March 2020, Scottish house prices increased by 1.5% from the previous year. Nobody could have blamed you for going into 2020 with the optimistic intentions of buying your first-home or selling your current house. But, then COVID-19 and lockdown restrictions came along and made navigating the housing market that little bit harder.
To increase the property market activity and boost the wider economy, the UK and Scottish Governments recently announced a tax holiday for property purchases. Stamp duty is a tax levied on property purchases in England and Northern Ireland. Scottish “stamp duty”, known as the Land and Buildings Transaction Tax (LBTT), is the tax paid when buying a property in Scotland.
Continue reading as we explain what the Scottish Government’s LBTT holiday means for the housing market, who will be affected, and if you should take advantage of the tax holiday when it comes into effect.
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.
In England and Northern Ireland, Chancellor Rishi Sunak has temporarily cut the threshold at which homebuyers are required to pay SDLT. It’s thought that this will help get the UK property market re-started following the initial impact of the COVID-19 pandemic.
From July 15th 2020 until March 31st 2021, homebuyers in England and Northern Ireland will no longer need to pay stamp duty when buying a property up to the value of £500,000. Usually, the tax is paid on properties over £125,000.
In a similar response to the UK Chancellor’s decision, the Scottish Cabinet Secretary for Finance, Kate Forbes MSP, announced on July 9th 2020 that the starting threshold for LBTT for residential property transactions will be raised temporarily from £145,000 to £250,000. According to the Scottish Government, this move means that 8 out of 10 homebuyers would pay no LBTT on property purchases.
In Scotland, the announced tax changes will not come into effect immediately, and do not apply to the purchase of second homes. This means that those purchasing additional properties will still have to pay an extra 3% in LBTT no matter the purchase price of the property.
Once the LBTT holiday comes into effect in Scotland, the tax thresholds will be as follows:
As a blanket measure across the entire Scottish property market, there are some concerns that the temporary alterations to LBTT tax bands may not help first-time property buyers in the way the tax changes should.
To address this issue, the Scottish Government has committed an extra £50 million to the ‘First Home Fund’ which allows first-time property buyers to borrow money from the government interest-free. This shared equity scheme can provide first-time buyers with up to £25,000 to help them get a foothold on the property ladder.
The slowing of the Scottish housing market has had a negative impact on anyone trying to sell their properties. According to the May 2020 Nationwide House Price Index, UK house price growth slowed to 1.8%. By March 2020, the LBTT revenue was £288 million, up 10% from 2019. By April 2020, even when lockdown had only been in place for a few weeks, LBTT fell by 67%.
If sellers were in any doubt about listing their properties, the LBTT holiday holds the potential to increase the amount of listings coming to the market now that there’s greater security in future purchases. With buyers encouraged by the prospect of saving money on the purchasing of a property, the LBTT holiday could benefit sellers by sparking buyer interest with no direct cost to sellers.
The temporary LBTT holiday was designed to boost more than just the Scottish housing market. The COVID-19 pandemic saw retail, planning and construction grind to a halt so it’s hoped that the changes to LBTT stimulate cash-flow allowing Scottish businesses to stay in operation and maintain jobs within the sector.
There will be a knock-on economic effect for other sectors such construction and retail after the Scottish housing market reopened with a bang, with more people looking to buy and invest in new properties and complete home improvements.
In the past, LBTT has been accused of slowing down the property market by discouraging people from buying new properties. The recent changes made to LBTT are intended to kickstart the Scottish property market, which has slumped since the start of the COVID-19 with market sales down between as much as 20-35%.
Reducing the threshold for LBTT makes it cheaper for buyers to purchase properties. Reducing the LBTT should boost activity while supporting movers and the property market more generally. It’s hoped that the LBTT holiday will deliver a short-term boost to successfully aid Scotland’s recovery.
A temporary drop in LBTT is exactly that – temporary. While the changes to LBTT need to overcome short-term administrative and legislative hurdles to officially come into effect, once they do, the tax threshold will be raised until 31st March 2021.
So, is it a race against the clock to take advantage of the LBTT holiday in Scotland?
Unfortunately, the answer isn’t as simple as yes or no. The LBTT holiday has the potential to save property buyers money, but the amount will vary depending on the price of the property. According to the Chartered Institute of Taxation, a person buying a house at the average Scottish house price of £179,541 could expect to save £690 in LBTT.
As a homebuyer the news of any financial saving will be music to your ears. When you’re buying a new property there’s a good chance you’ll want to buy some new furniture and make some personal touches before settling into your new home.
Having some extra money in your pocket will surely help you tackle home improvements or fix any issues, but before you commit to making a large purchasing decision it’s worth making sure you have a clear value of what that saving could be.
Whether you’re the buyer or seller, having all the information about a property gives everyone involved a realistic and thorough picture of the condition and value of the property in question. When time is of the essence, obtaining a professional Home Report quickly can make all the difference.
COVID-19 has brought many uncertainties, but the Scottish Government changes to LBTT will likely give the Scottish property market a healthy boost. To best-position yourself, getting a Home Report early in the selling process is the ideal way to prepare and reassure your potential buyers. Read our expert guide to learn more about Home Reports and what documents are included.
If you have any questions about buying or selling property or would like to ask us information about the Scottish Government LBTT holiday give us a call 0131 608 0175 or email email@example.com.