It has already been well publicised and commented upon that on 1 April this year the UK Stamp Duty Land Tax (“SDLT”) system will be abolished in Scotland and replaced with Land and Buildings Transaction Tax (“LBTT”). Transactions that have a settlement date (the English and Welsh equivalent of completion) on or after 1 April 2015 will be subject to the new regime. As with the SDLT change that came into force last December, the new bands and rates created by LBTT are designed to make the system fairer and eliminate the bunching of Scottish property sales around the SDLT thresholds that were occurring prior to 4 December last year.
Rates and bands
Currently, the same rates of tax apply to house purchases in Scotland as throughout the rest of the UK. This system was only introduced in December last year and means that Scotland will have seen two changes to a vital regime in less than six months.
The current rates and bands are:
Up to £125,000 is 0%
£125,001 to £250,000 is 2%
£250,001 to £925,000 is 5%
£925,001 to £1,500,000 is 10%
£1,500,001+ is 12%
Although the following rates and bands are yet to be approved by the Scottish Parliament, an announcement in this regard is expected imminently.
The proposals for LBTT are:
Up to £145,000 is 0%
£145,001 to £250,000 is 2%
£250,001 to £325,000 is 5%
£325,001 to £750,000 is 10%
£750,001+ is 12%
The effect of the interim regime has been that generally Scottish home buyers, depending on the value of the property, will have to pay a substantially larger sum of property tax for transactions that settle on or after 1 April when compared to a similar property transaction in England and Wales or a similar transaction in Scotland that settles between now and 31 March. Therefore, the changes have created a panic for many property buyers in Scotland who are presently looking to either buy a property or invest in Scotland. Combine this with the fact that traditionally this is the time of the year when there are fewer properties are on estate agents’ books and what has Westminster and Holyrood created? A perfect property seller’s market.
Don’t miss out buying your investment property
If property buyers know they are purchasing a Scottish property which will incur a higher tax liability should they settle on or after 1 April, there are several actions they should now be taking. Everything should be done to ensure they have all matters in order on their side: property mortgages and finance should be put in place; settlement dates agreed; signed documents returned to the respective property solicitors; removals arranged and any questions which are raised should be answered in a timely manner.
Similarly, the property sellers should read and ensure that they understand all documentation their solicitors send them. All paperwork or issues that could hold-up the sale, such as planning documents or guarantees, must be provided to solicitors as early in the process as possible. They should also ensure a settlement date is agreed.
The last week in March is going to be an uneasy one for Scottish property conveyancing solicitors. They will undoubtedly be preoccupied by the thought of a last-minute hitch occurring which leads to a delay in settlement so that it goes past 1 April. This could result in major financial consequences which their clients will not welcome; join the race to settle now and make sure this does not happen to you.