LBTT supplement for second homes in Scotland

Friday 29 January 2016

A couple of weeks ago we reported on the Scottish Government's proposal for the introduction of a 3% LBTT supplement on second homes. We submitted our own written response before the Scottish Finance Committee's consultation ended, providing reasoned arguments for the pros and cons of the issues raised.

Things have progressed quickly over the course of a month or so, and the Land and Buildings Transaction Tax (Amendment) (Scotland) Bill was introduced to Parliament last week with the new measures contained. 

The proposals look to support home ownership in a 'balanced and sustainable' way, and to level the playing field of tax charges so that it is more proportionate to the ability to pay. 

The 3% supplementary charge would apply to all second homes with a purchase price of over £40,000 from 1 April 2016, or the day after Royal Assent (whichever is later). 

In our response we looked at how the proposals are likely to effect the Scottish housing sector, considered the pros and cons of sections and provided our expert opinion on points that require further consideration. 

A 3% surcharge is encouraging news perhaps for first-time buyers looking to buy in hot spots such as Edinburgh, Glasgow and Aberdeen, but we argue that likely to cause a rush of buy-to-let investors to buy before the new rules come into force and reduce the numbers of investors longer term. We have also raised our concerns that buy-to-let landlords will just end up passing the additional cost onto their tenants. 

The measures contained in the Bill alone don't go far enough to encourage growth in home ownership as house prices are simply getting way out of reach for many people. To better address the low numbers of home ownership, we argue for a large scale housebuilding programme and more help to allow people to access a greater variety of finance options to cover additional costs such as deposits and solicitors fees.  We need to see a multi-faceted approach by the Scottish Government to tackle the supply and demands problems and slow the escalation of house prices across the country.

The surcharge may also cause problems for the increasing numbers of parents who purchase additional homes for their children or those who have to go on the mortgage with family members in order to help them purchase their first home. 

We also call for greater clarity on certain elements of the proposals, highlight the need for more examples and detail, and question the Government's projection for how much extra revenue the tax change will bring to the coffers.