Stamp Duty is to be replaced by a more progressive tax in Scotland
Yui Mok/PA WIRE
Scotland is to scrap Stamp Duty and put a new tax in its place.
The Land and Building Transaction Tax (LBTT) will only be added to properties that cost over £135,000. It will come into force in April 2015.
The problem with Stamp Duty
Stamp Duty is often criticised for working in a ‘slab’ nature. So while you don’t pay any tax on purchases of up to £125,000, pay just one penny more and you’ll be hit with a 1% tax. Similarly the difference between paying £250,000 and £250,000.001 for a property is a jump in Stamp Duty from 1% to 3%. And that difference is significant, jumping from £2,500 to £7,500.
How the new tax works
To get away from the ‘slab’ taxation of Stamp Duty, LBTT climbs in units. This means that a tax of 2% will apply in proportion to properties between £135,000 and £250,000. The next stage up is a 10% tax on properties between £250,000 and £1 million.
On the highest bracket, 12% tax will be placed on properties costing over £1 million.
Buyers at the higher end of the market will have a six-month window to purchase property before the tax change. Housing experts predict a sharp boost in this period.
Good for first-time buyers
The change should benefit first-time buyers that want to get on to the property ladder, who will save millions under this scheme.
Finance Secretary John Swinney argued that 90% of Scots will either pay less or be unaffected by the new tax:
Under Stamp Duty a first-time buyer buying a property worth £130,000 would have had to pay £1,300 in tax whereas now it’s tax-free.
A couple buying a flat for £140,000 will now pay tax of £100, saving £1,300 compared to Stamp Duty.
The average flat in Scotland is worth £162,000. Purchasing such a property would result in paying £1,620 in Stamp Duty, though this would fall to £540 under the new tax
Significant influence on property hotspots
For the 10% it does affect, it’ll be steep.
There will be big tax jumps in pricier locations like Edinburgh and Aberdeen, which could have a harsher effect on families looking to buy larger houses in central areas.
In Edinburgh the average family home costs £363,000 which clocks up £13,600 under the Land and Building Transaction tax.
Meanwhile, people buying properties worth £450,000 would pay £22,300 in tax, up £8,000 from their Stamp Duty bill.
The move has been criticised as a “Scottish mansion tax”, putting a strain on the squeezed middle.