Scottish ‘mansion tax’ to hit rich buyers and investors
Scotland’s grouse moors and castles have long been a draw for the globe-trotting wealthy. They will now face a land and buildings transaction tax (LBTT) at marginal rates of up to 12 per cent – up from a current maximum of 7 per cent UK-wide stamp duty for housing and 4 per cent for commercial property.
The tax will be levied by the devolved Edinburgh government on a sliding scale, with the first £135,000 of any property being tax-free.
Under the current UK-wide tax regime, someone buying a £500,000 home pays £15,000 stamp duty; under the new Scottish LBTT system they will pay £27,300 – an 82 per cent increase, according to estate agent Knight Frank.
Homes worth over £250,000 accounted for three-quarters of the £215m stamp duty raised in Scotland last year, Knight Frank said.
Matthew Gray, of the National Association of Estate Agents, said the change would prove “hard-hitting for those at the top of the market”.
One property adviser said he feared that investors would be “unnerved” by the Scottish government’s move to step out of line with the rest of the UK.
Agents and advisers warned that the tax change could also hit activity in the commercial property sector, which had been expected to surge as a result of the recent “No” vote in Scotland’s independence referendum.
Alasdair Humphrey, a director at advisers JLL, said the move would push down property valuations, which in turn would hit investors’ portfolios. Pension funds in particular could face writedowns, he warned.
Malcolm Leslie, partner in Strutt & Parker’s Edinburgh office, said the six-month window before the tax was introduced meant there was likely to be a surge in purchases this winter.
“Today’s announcement creates a six-month window of opportunity for buyers at the middle and top end of the market to purchase a property before the tax they will have to pay increases considerably,” he said.
Jim Hillan, a partner at law firm CMS, said the move would hit the majority of commercial property deals.
“Non-residential LBTT will be cheaper than the old stamp duty land tax for transactions up to around £2m,” he said. “However, transactions of major strategic importance for businesses regularly weigh in at more than that; on a £50m acquisition the tax bill goes up by almost £250,000. There may be an assumption that large transactions can support a larger tax bill – that may not always be the case.”