16 Sep 2013

New Land and Property Tax Approved by MSPs

New Land and Property Tax Approved by MSPs

Samantha Morrice, Solicitor, considers the proposed changes to stamp duty in Scotland.

Samantha Morrice, Solicitor, considers the proposed changes to stamp duty in Scotland.

In July 2012 our Conveyancing Partner, Fiona Wildgoose, looked at the proposed changes to Stamp Duty Land Tax in Scotland in the form of the Land and Building Transactions Tax (Scotland) Bill. This Bill has now been approved by MSPs.

Dubbed as the “fairer tax”, politicians hope that the new property tax will revitalise the housing market in Scotland and primarily aid first time buyers. The Bill is due to come into effect on 1 April 2015 and will be the first substantial tax for which the Scottish Parliament has legislated.

In terms of the Bill, property in Scotland costing more than the threshold will be charged at a progressive rate like income tax. This replaces the Stamp Duty Land Tax “slab-rate” structure currently applicable on property purchases throughout the UK. Critics of the current regime have long since argued it is unfair due to the fact it is charged on the whole of the purchase price.

Since July last year there has been some clarification on how the new regime will work however there is still much to be decided. For example, in terms of the Bill, a new body called Revenue Scotland will be created to gather the land and property tax in conjunction with the Registers of Scotland (the body responsible for registering title to land in Scotland). But the roles and responsibilities of each of these organisations is still to be decided.

Furthermore there is still uncertainty surrounding the rates and bands of the new tax and these will not be made available until the budget in September 2014. Following consultation it appears likely those properties sold for under £180,000 will not be subject to stamp duty. The set rate of tax for properties between £180,000 and £1,500,000 will likely be 7.5% and this rate will be charged on every pound above £180,000.

As Fiona touched on in her article, while first time buyers may be helped by the increase in the stamp duty threshold, critics of the reform have warned that families in expensive areas such as parts of Aberdeen and Edinburgh could face a hike in tax of several thousand pounds.

In addition, there are fears that while most of the reliefs under the current system of Stamp Duty Land Tax will remain, the general subsale relief has been left out of the Bill. Subsale relief prevents a double stamp duty charge when someone contracts to buy property and then sells the property on before they have acquired it and this omission is a real concern for house builders and developers. Coupled with the fact there is still uncertainty surrounding the rates, critics think this could act as a disincentive to potential investors. The new tax does however propose to have a lower top rate for commercial property compared with that for residential.

It seems there are still some questions to be answered in relation to the implementation of the Land and Building Transactions Tax in Scotland, however a fairer, simpler system will be welcomed by most and in fact some commentators are now calling for the rest of the UK to follow suit.

Samantha Morrice, Solicitor

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