Scottish government plans tax rise for second home buyers and landlords

The Scottish government has announced plans to increase the tax on individuals buying a second home or a buy-to-let property from 3% of the purchase price to 4%. The levy is part of the Land and Buildings Transaction Tax (LBTT), which replaced stamp duty in Scotland in April 2015.

The change, which will be effective from the 25th January 2019 if approved by the Scottish Parliament, will increase purchase costs for buy-to-let investors and second home buyers across the country.

It means that a second home buyer purchasing a property for £500,000 will see their total bill rise from £38,350 to £43,350.

According to figures from the Scottish Government, revenue from ADS is expected to be £94m in 2018/19, rising to £122m in 2019/20 and £134m in 2023/24.

Oliver Knight, Associate, Knight Frank Residential Research, said: "This new proposal is another in a long line of tax changes introduced in Scotland and across the wider UK market in recent years and also comes at a time when landlords are being squeezed through cuts to tax reliefs.

The concern is that the introduction of a higher rate of tax will deter investment into Scotland, a factor which has the potential to weigh on property transactions by raising costs and creating market uncertainty.”

Since the introduction of the additional dwelling supplement on 1 April 2016, Revenue Scotland has collected around £240m in receipts from second home buyers and buy-to-let investors, accounting for 27% of total residential LBTT tax take over this time.

In addition, during the Budget, the Scottish Government announced a series of changes to non-residential LBTT rates. The lower tax threshold for non-residential purchases will reduce from 3% currently to 1%, whilst the upper rate will rise from 4.5% currently to 5%. The starting threshold of the upper rate will also change, moving from £350,000 to £250,000.