A deeper look at the changes to residential

On the 21st of January 2015 the Deputy First Minister confirmed to the Scottish Parliament that the tax rates on residential property had been reviewed and revised. As such, the new Land and Buildings Transactions Tax (LBTT) will be introduced on 1st April 2015 in Scotland, replacing the UK Stamp Duty Land Tax (SDLT).

Initial impact

The cost of a residential property above £333,000 will become more expensive upon the implementation of the new taxation, with the fiscal impact becoming greater the higher the purchase price. For example, a £500,000 property will incur a tax liability of £23,350 compared to that of £15,000 previously, a difference of £8,350. At the higher end of the scale, a £1m property will be incurring a cost of £78,350 compared to £43,750 previously making a difference of £34,600. The Edinburgh market is seeing an increase in activity leading up to the introduction of LBTT but it is envisaged that April will be a quieter trading month. This is due in part to the Easter School holidays and LBTT, thus buyers and sellers will take a while to adjust to the new tax. However, given the pent up demand for prime property in Edinburgh, the market should recover through the summer months. On the other hand, the Highland market is completely different to that in Edinburgh, Banchory and other parts of Scotland in that it can be more seasonal. Buyers, who would have traditionally waited to spring/summer time, are now completing deals in advance of the change to LBTT, with most of the activity in the market being at the £400,000 - £600,000 level.

The detail

The tax will have implications for much of Scotland, particularly in the major cities of Edinburgh and Aberdeen where the average house price is substantially higher than the £165,903 national average at £225,054 and £212,956 respectively, based on January figures from Registers of Scotland. The table below outlines the changes in both the trigger prices and the tax liability at those points. As with income tax, the liability will increase progressively with price.

View the full LBTT bulletin.