What does the LBTT threshold rise mean for the market?
If you moved home and paid £2,000 less than you were expecting to, what would you spend it on?
A quick internet search shows your choices could include a Peloton exercise bike, a summerhouse for the garden, or even a stunning range cooker, and you’d maybe even get some change.
That will soon be the reality for buyers in Scotland who, after a Scottish Government announcement on Thursday, won’t pay ‘stamp duty’ tax on properties sold for less than £250,000 from this Wednesday, 15 July until the end of March next year.
Scottish finance secretary Kate Forbes followed UK chancellor Rishi Sunak’s lead and raised the threshold for Land and Buildings Transaction Tax (LBTT), currently at £145,000 and £175,000 for first time buyers.
The threshold isn’t as high as that for stamp duty in England, which was raised to £500,000, but the government has said it will set aside a further £50million for its First Home Fund, to support 2,000 more purchases and help more buyers get on the property ladder.
What it means
If you are buying a home at £250,000, or above, you’ll save £2,100 under the new regime.
Looking at the portfolio of properties for sale today, if the rules applied, we'd have an additional 164 homes that would be free from the duty.
As for the bigger picture, the government says the move means around eight in 10 buyers in Scotland will not pay LBTT. The average cost of a residential property in Scotland for the 2019/20 financial year was £182,357.
And it's good, a day after the LBTT temporary holiday announcement, to have such quick clarity on the start date.
Otherwise there was a danger, with the chance of saving thousands of pounds, that people would press pause on any purchases until the new regime kicked in.
Additional dwelling supplement
These purchasers aren’t the only ones who may find themselves with money they weren’t counting on.
In May, the Scottish Parliament passed a bill that included a change to the Additional Dwelling Supplement (ADS).
ADS is an additional sum of LBTT that has to be paid when you buy a second home in Scotland such as a holiday home or buy-to-let property.
The bill included an extension to the time period for selling a former home so that ADS can be reclaimed from 18 to 36 months, where the new home was bought between 24 September 2018 and 24 March this year.
To illustrate the difference this makes, I have one client whose 18-month time period to reclaim over £15,000 would have expired at the end of July.
The client has received an offer for their property, but because of when the buyers were able to move would have missed out on this extension by a matter of weeks.
In short, these are welcome moves, and the early date for implementation of the raised LBTT threshold may well prove crucial when it comes to invigorating the Scottish property market.