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Chancellor's stamp duty land tax changes could disadvantage Scottish buyers, says expert

Out-Law News | 05 Dec 2014 | 5:26 pm | 2 min. read

House buyers in Scotland could lose out when the replacement for stamp duty land tax (SDLT) comes into force next April, following this week's surprise announcements by the UK chancellor of the exchequer, an expert has said.

Radical reforms to SDLT that took effect at midnight on Thursday cut the "tipping point" at which purchasers would pay more under the new land and building transaction tax (LBTT) from £325,000 to £254,000, said land tax expert Alan Cook of Pinsent Masons, the law firm behind Out-Law.com. This put an end to the Scottish government's previous claim that up to 90% of home buyers would be better off under the new regime, he said.

"Before the announcement, if you were buying a house under £325,000 you had an incentive to wait until LBTT kicked in on 1 April, but the chancellor's stamp duty announcement brought that down to £254,000," he said. "This does pull the rug from under the Scottish government's claims that LBTT would benefit the vast majority of the house buying public."

"There is now a four-month window in which this mid-market will very much be energised and there is a good incentive for purchasers of property worth over £254,000 to push things through before the end of March. For more expensive family homes in property hotspots Aberdeen, Glasgow and Edinburgh, the financial impact of the new LBTT compared to what it would have cost in SDLT is even more accentuated," he said.

Cook said that there was now a case for the Scottish government's deputy first minister and finance secretary, John Swinney, to introduce an "intermediate" LBTT rate for home purchases costing more than £250,000.

"There has been lobbying to encourage Holyrood to introduce an intermediate band for purchases over £250,000, somewhere between 2 and 10%, and this will increase pressure for Mr Swinney to reconsider," he said.

SDLT is charged whenever land or buildings are purchased or leased. As part of Wednesday's Autumn Statement, George Osborne announced a new 'banded' SDLT regime applicable to residential property purchases with immediate effect. Previously SDLT was charged on a 'slab' basis, under which a single rate of tax dependent on the overall value of the transaction was applied to the whole amount. This regime still applies to commercial property transactions.

LBTT, which replaces SDLT in Scotland on 1 April 2015, uses a progressive structure similar to the current income tax system, under which slices of the transaction price will be taxed at increasing percentages. The draft Scottish budget for 2015/16 proposes that the first £135,000 of a residential property transaction would be free of LBTT; while a 2% rate would apply to the amount between £135,001 and £250,000 and 10% to the amount between £250,001 and £1 million. Any amount above £1m would be taxed at 12%.

The new SDLT regime will work on a similar basis, with the tax payable at each rate on the portion of the purchase price that falls within that band. Under SDLT, the portion of the purchase price under £125,000 is tax free while a 2% rate applies between £125,001 and £250,000. The rate increases to 5% on the portion between £250,001 and £925,001; 10% on the portion between £925,001 and £1.5m and only hits 12% on the portion above £1,500,001.