Land & Buildings Transaction Tax
With the recent announcement by John Swinney to reform Stamp Duty into the new Land and Buildings Transaction Tax (LBTT), we think there are some interesting points to make about the effect of the LBTT on the Edinburgh property market. So, what is it all about?
The tax will take effect from 1st April 2015 and the rates are:
0% £0 - £125,000
2% £125,001 - £250,000
10% £250,001 - £1,000,000
12% £1,000,000+
So up to a purchase price of £321,428.60 you are better off under the new rules, but worse off thereafter. Some examples:
£300,000 - Old tax £9,000 / new tax £7,500
£450,000 - Old tax £13,500 / new tax £22,500
£850,000 - Old tax £25,500 / new tax £62,500
£1,200,000 - Old Tax £48,000 / new tax £101,500
Our thoughts
Most Buy-To-Lets will be below the new cross-over price (£321,428) so this will make it more affordable for investors to buy typical PRS properties. Will this therefore increase house prices as more demand enters the market? Perhaps cynically, is this tax designed to do that and move towards getting more tax at the higher rate as house price growth accelerates through the waypoints?
At the typical Edinburgh large flat level (£350,000) the tax increases from £10,500 up to £12,500 and the extra £2,000 is unlikely to make any real difference to purchasers at this level. On larger properties, the market is likely to be busy with purchasers looking to complete prior to 1st April 2015 but is also likely to be flat (no pun intended!) for the rest of the summer.
The new tax will however remove the ‘no-man’s land’ for valuations of £250,000 – £270,000. Currently, not many deals occur within this bracket as the tax jumps from 1% to 3% at £250,000. This should mean a simpler market around that area with cheaper flats being valued up and higher ones being offered at ‘offers up to’. It may mean that houses are put on the market at more fixed prices, more like the English system, with ‘offers over’ becoming less popular as a result.