24 Oct 2014

Analysis: Land and Buildings Transaction Tax - How will this affect you?

Analysis: Land and Buildings Transaction Tax - How will this affect you?

Douglas Telfer, Senior Solicitor, reports on the Land and Buildings Transaction Tax (LBTT) which will replace Stamp Duty Land Tax (SDLT) in Scotland from 1 April 2015.

Douglas Telfer, Senior Solicitor, reports on the Land and Buildings Transaction Tax (LBTT) which will replace Stamp Duty Land Tax (SDLT) in Scotland from 1 April 2015.

The Land and Buildings Transaction Tax (Scotland) Act 2013 was passed in July 2013. On the 9th of October 2014, Cabinet Secretary John Swinney announced the rates and thresholds that will apply to transactions from 1 April 2015. The tax will be the first levied by a Scottish Parliament in 300 years.

The current SDLT system is a ‘slab tax’ where the whole purchase price is taxed at the same rate. The new system is charged at the appropriate rate on the amount of the chargeable consideration within each threshold, making it a “progressive tax”.  This means the amount of tax paid will be more closely linked to the value or price of the property. 

SDLT rates and thresholds for residential purchases (rates from 20 March 2014):

  • SDLT has a nil rate up to £125,000 for residential property.
  • Over £125,000 to £250,000 – 1%
  • Over £250,000 to £500,000 – 3%
  • Over £500,000 to £1 million – 4%
  • Over £1 million to £2 million – 5%
  • Over £2million – 7%
LBTT  rates and thresholds for residential purchases (rates applicable from 1 April 2015):
  • LBTT will have a nil rate up to £135,000 for residential property.
  • Over £135,000 to £250,000 – 2%
  • Over £250,000 to £1 million – 10%
  • Above £1 million – 12%

Example of LBTT

Therefore, LBTT on a house bought for £275,000 is charged at:
  • 0% for the first £135,000, then
  • 2% for the next £115,000 and
  • 10% for the remaining £25,000
  • So £4,800 must be paid in LBTT.

The new LBTT system will be of most benefit to first time buyers and those slightly more advanced up the property ladder. LBTT will save buyers money when purchasing a property priced up to £325,000. Anything above this amount will not benefit from the change, adding significantly to purchase costs for higher value properties.

Government figures suggest that 90% of house purchases are below £325,000, so it is likely that purchases and sales below this figure will slow down in the period leading up to April 2015. This in turn will increase competition within the lower end of the market next April.

Although the tax cost attached to purchasing a property is set to decrease next April, now is still a great time to buy. The financial sector has recently been predicting a rise in interest rates which will see the cost of borrowing increase with it. So despite paying more tax now, this is no reason to delay getting on to the property ladder as it is expected to prove much more cost effective in the long run.

Higher value areas such as Aberdeen and Edinburgh could see some distortion and disruption to the middle and top end of the market, as those above the £325,000 figure rush to conclude deals within the next 6 months, before the new tax levels come into force.  If you are thinking of buying or selling a property priced at over £325,000, this may be the time to consider the move, before the new tax system comes into effect.

Douglas Telfer, Senior Solicitor


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