The Scottish Government raised £35.1m more than expected on Land and Buildings Transaction Tax (LBTT) in its first year, but only because of higher than expected tax receipts for commercial sales.
The tax raised by residential LBTT was £201.9m, £33.1m less than the £235m which Finance Secretary John Swinney said he expected to raise in the first year. The total LBTT tax take was £416.1m.
Figures released by Revenue Scotland today, reporting on the first year of Scotland’s first tax in 300 years, show the following:
Draft budget 2016-17 Forecast: Land and Buildings Transaction Tax Revenue 2015-16 to 2020-21
| Expected | Actual | ||
| Residential | £235m | £201.9m | Shortfall £33.1m |
| Non-residential | £146m | £214.2m | Surplus £68.2m |
Blair Stewart, Partner in Strutt & Parker’s Edinburgh office, said: “The LBTT residential shortfall is significant and highlights a weakness in relying on too narrow a band of high value sales. While the commercial LBTT tax revenues came to the rescue this year, the forecast for the next five years is steadily more dependent on high value sales (see Scottish Government forecast below). Equally, the end of the year was distorted because significant numbers of people were buying properties before the LBTT surcharge kicked in. This will not be the case in future years.”
| 2016-17 | 2017-18 | 2018-19 | 2019-20 | 2020-21 | |
| £million | £million | £million | £million | £million | |
| Residential | 295 | 355 | 415 | 480 | 545 |
| Non-residential | 220 | 230 | 240 | 250 | 260 |
| Total | 515 | 585 | 655 | 730 | 805 |
Mr Stewart said: “While the whole housing market is improving in terms of sales volumes the behavioural impact of LBTT on the upper end is still playing out. The average value of a house in Edinburgh dropped 15.4%* in February, compared to February 2015. This is not indicative of a price crash now but it is illustrative of how much the market has been distorted by LBTT.
“Interestingly, in February the year-to-date sales volumes in all three of our Edinburgh markets (£350,000 to £750,000; £750,000 to £1m and; £1m plus) were either up or level pegging with February 2015, despite the sales rush at the start of last year and despite the February to February 15% drop in average price. We consider this is largely due to buyers forestalling and investing in buy to let properties and second homes before the LBTT supplement on additional properties kicked in on April 1. However, it also shows a strong performance in the market in the first months of 2016.
“Revenue Scotland shows there were far more residential purchases liable for LBTT in March than anticipated, despite a greater proportion of these being cheaper flatter properties suitable for buy-to-let. The March tax take from residential LBTT was expected to amount to £17m and it actually reached £20.9m.”
Aberdeenshire offers yet more interesting figures. Premium sales registered in February (57)* were down on the same month a year ago when 75 such sales took place. This cooling contrasted with a strong finish at the end of 2015 which saw 122 and 120 premium sales (>£300K) respectively in November and December but is up on January’s 42 sales. However, these figures are not just an indicator of the impact of the fall in oil prices; the February on February drop shows the extent of the sales rush before the introduction of Land and Buildings Transaction Tax (LBTT) in April last year.
The average property price in Aberdeenshire in February was £213,232, up from £203,329 in January but 8% down from £223,312 in February 2015.
David Strang-Steel, partner in Strutt & Parker’s Banchory office, said: “The long-term picture shows a steady increase in Aberdeenshire property prices over the last 10 years and, despite a drop in the last 12 months, Aberdeenshire property prices (£213,232) remain significantly higher than the average in Scotland (£159,928).
“The Aberdeen average price of £185,009 shows a 17.2% fall between February 2015 and February 2016. Equally, sales in Aberdeen fell from 68 in February 2015 to 36 in February this year. However, this steep drop in both value and sales highlights the huge spike in prices and transactions before the introduction of LBTT last year. I expect March to show a similar year on year drop but any analysis of the market must take that artificial distortion into account.
“What will happen next is largely dependent on the oil economy. Any upturn in the property market is going to be dependent on the oil price and no one is predicting there will be any improvement this year. The collapse of the OPEC talks is not going to help. I do not think we will see an upturn until 2017 at the earliest and possibly 2018. However, expectations are adjusting and sellers in the premium property bracket are being a lot more realistic than they were last year.
* Strutt & Parker analysis based on aggregated statistics from Acadata using Registers of Scotland licensed data. It includes data on all sales (not simply Strutt & Parker). February – the last figures available