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Scottish government to review proposed property tax rates following UK Budget SDLT changes


The Scottish government's decision to review the tax rates that will apply to residential property sales once the new land and buildings transaction tax (LBTT) takes effect in April will come as a relief to the country's housing market, an expert has said.

Property law expert Alan Cook of Pinsent Masons, the law firm behind Out-Law.com, said previously that homebuyers in Scotland's larger cities would be left out of pocket compared to those in the rest of the UK under the new regime, following surprise changes to the way in which stamp duty land tax (SDLT) is calculated announced in December by the UK government.

"When the rates and bands for LBTT were first announced in October, we highlighted at the time the hefty jump in the rate for residential property worth over £250,000, at which point the LBTT rate increases from 2% to 10%," he said. "The UK chancellor's reform of SDLT rates, which apply in Scotland between December 2014 when they were announced and 31 March 2015, has a similar 2% band below £250,000; but then introduces an intermediate 5% band to the extent that the house price is between £250,000 and £925,000 before increasing to 10%."

"This change added further pressure on the Scottish government to introduce an intermediate band for LBTT for houses worth over £250,000, and this announcement is its response to that. It will come as a relief to the Scottish housing market which has been concerned at the impact which the jump in LBTT rates would have, in particular on the market for family homes in the larger cities," he said.

John Swinney, the Scottish finance secretary, said that he would "review" the proposed rates as part of the Scottish Budget Bill process, which will begin on Wednesday. He said that he had the flexibility to do so as a result of final negotiations on the extent to which the 'block grant' that the Scottish government receives from Westminster would be reduced to reflect its new tax-raising powers.

"At the time of my proposals - designed for the Scottish market, not London house prices - 90% of homebuyers would have been better or no worse off, and 5,000 homes would have been taken out of taxation altogether, helping those at the lower end of the market," he said.

"The chancellor's decision to introduce a new stamp duty system overnight, without warning and consultation, means that while 80% of homeowners continue to pay less tax or no tax at all under the Scottish system we now have the opportunity to review the rates and ensure they are right for Scotland," he said.

LBTT will replace SDLT, a tax that is charged whenever land or buildings are purchased or leased, in Scotland from 1 April 2015. Under LBTT, tax will be calculated using a progressive structure similar to that which applies to the current income tax system, under which slices of the transaction price will be taxed at increasing percentages. The draft Scottish budget for 2015/16, published in October, proposed that the first £135,000 of a residential property transaction would be free of LBTT. A 2% rate would apply to the amount between £135,001 and £250,000; 10% to the amount between £250,001 and £1 million; and 12% to any amount above £1m.

SDLT had previously been charged on a 'slab' basis, under which a single rate of tax dependent on the overall value of the transaction was applied to the whole amount. However, a new 'banded' SDLT regime was introduced with immediate effect as part of the UK government's Autumn Statement in December, on residential property purchases only. Now the portion of the purchase price under £125,000 is tax free while a 2% rate applies between £125,001 and £250,000. The rate increases to 5% on the portion between £250,001 and £925,001; 10% on the portion between £925,001 and £1.5m and only hits 12% on the portion above £1,500,001.

When the new SDLT rates were announced, property law expert Alan Cook said that they cut the "tipping point" at which purchasers in Scotland would pay more once LBTT took effect from £325,000 to £254,000. This effectively put an end to the Scottish government's previous claim that up to 90% of homebuyers would be better off under the new regime, he said.

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