Land & Buildings Transaction Tax - LBTT

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Our brief comments on this tax and whether or not it is achieving its goals.

In December 2016 the BBC News website ran a piece in which the Scottish Government states that this new property tax has been operationally successful.

For those who don’t know about LBTT, it is the Scottish Stamp Duty introduced to Scotland in April 2015 to replace the former Stamp Duty.

Finance Director Derek Mackay was quoted by the BBC as telling the Scottish Parliament’s finance committee that LBTT has so far meant that nearly 9,700 homebuyers who would have paid Stamp Duty did not have to pay LBTT when buying a home and that a further 41,700 paid less tax as a result of changes to the charges for properties costing between £145,000 and £325,000. Quite sensibly the committee were a little more cautious in their views and were quoted as saying that it was “too early to draw and definite conclusions” and MSPs want to know just what impact the LBTT has had, if any, on the first time buyer market, as there is no tax on properties purchased at up to £145,000 and if this has contributed to increased house prices. Also MSPs want to know what effect LBTT has had on properties at the upper end of the market where the amount of tax payable has been significantly increased.

I suppose the yardstick for measuring the success or lack of success is what goal or goals the Scottish Parliament had when they introduced the new tax. And who knows what that may have been? But tinkering with tax for the sake of gaining popularity can have unanticipated consequences and tinkering with tax at the edges of a much larger problem goes no way towards solving that problem. Our experience has been that LBTT has had little effect on first time buyers and the sale of properties at the lower end of the market in Edinburgh but has had a significant effect on the market at the top end where the tax has been significantly increased.

In our firm we act for a lot of first time sellers and first time buyers.

We specialise in acting for first time buyers and sellers and we see the problems they face. The problem is not whether or not they have to pay a small or modest amount of tax. It is the state of the market at the moment in Edinburgh which is adding to the overall cost of buying their first home or their second home.

What perhaps the Scottish Parliament has failed to take account of is the fact that property prices in Edinburgh over 2015 and particularly over the course of 2016 have gone up well in excess of wages and salaries. Of course it is good that a few first time buyers get a little boost from saving a few hundred pounds in tax when buying a property but unfortunately any feel good factor from that is somewhat diminished in reality. In reality, the prices for properties affordable to first time buyers have increased about 10% over 2016. Why do we say this?

Supply and demand

When we market a property suitable for first time buyers we are confident that there will be upwards of 30 buyers wanting to view it, that we can expect to set a closing date for offers within a week or two weeks of the start of marketing and expect to receive offers that will be around 10% over the Home Report value. So, a property valued at £140,000 is typically likely to achieve a sale price of around £154,000. That is £14,000 over it current value. Lenders will only give buyers a mortgage of around 90% of the value of the property not the purchase price. So in the above example a first time buyer getting a 90% mortgage would need to have savings of £28,000 to be able to afford that property.

First time sellers are in the same market. Although they might be pleasantly surprised by how much profit they are making on the sale of their property they are then in the same boat when coming to find their next home of competing with people in the same situation and again having to offer significantly over the value of a property in order to offer successfully.

The problem for first time buyers in Edinburgh is not the amount of tax that they have to pay or not have to pay it is the price they have to pay to get onto the property ladder. We shall continue to help and advise our first time buyer and first time seller clients in 2017 but who knows yet whether property prices will continue to rise at the rate they have done in 2016?

We don’t think governments can solve every problem and perhaps the property market is best left to the forces of the market. But if the goal of the Scottish Parliament in introducing LBTT was to achieve 9,700 homebuyers not paying any tax then well done to them, but in not concerning itself with the problem of rising property prices they might be missing the larger problem.


At Cameron Stephen & Co. Solicitors and Estate Agents we have helped hundreds of people buy & sell their properties in and around Edinburgh. So, if we can help please you give us a call on 0131 555 1234.


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