While the SNP struggled to remain in total control of Scotland’s first independent tax change in 300 years, having been undercut by the UK government, the change has made many investors sit up and take notice. In simple terms the new property tax will effectively increase the burden for those at the higher end of the property market while reducing the cost at the lower end. Like so many political parties the SNP has been very vocal in its support for those on low to middle income but will this really mean the rich and famous shunning the Scottish property market?
Are there any similarities elsewhere in the UK?
Perhaps the most glaringly obvious similarity is the London property market and the ever-increasing burden when acquiring properties at the higher end of the spectrum. Indeed the Labour Party recently announced plans to introduce a new mansion tax which would fund additional investment in the Scottish NHS. This perfectly illustrates the fact that property markets around the world are often used as political footballs to attract voters and to attract headlines. So, have the changes in the London market led to a change in investment strategy?
Investors learn to live with change
Before we look at individual price brackets it is worth noting that time and time again, whether in property, business or the consumer market, individuals, companies and investors learn to live with changes over time. Recent increases in the tax burden at the higher end of the London property market caused many headlines but in reality had minimal impact upon the long-term trend. The same is likely with the Scottish property market because those acquiring more expensive properties are likely to have more capital behind them and the increase in tax will not impact their lifestyle.
However, there are two possible long-term issues to take into account which include: –
Squeezing the middle classes
If the SNP, and indeed other political parties across the UK, were to begin squeezing the so called “middle classes” these are the individuals who are not deemed to be rich and would not appreciate a significant jump in the cost of acquiring property. Some of the higher end estate agents in the UK have recently expressed concerns vented by their customers, some of whom have temporarily taken the Scottish real estate market off their radar. Those at the higher end of the spectrum will see a limited impact after the increase in property taxes and it is those in the middle who will struggle most.
Is this the thin end of the wedge?
While the recent tax changes announced by the Scottish government are not necessarily a game changer in the short-term, could they lead to a general ongoing increase in property taxes? If investors were to deem recent changes as the thin end of the wedge, with more increases to follow, this could be a game changer in the longer term. In reality politicians like to grab the headlines, they like to bash the rich but when everything settles down, if wealthy businesspeople were to leave Scotland then the tax burden across the whole spectrum would need to rise.
Some would argue that the SNP is trying to make a statement with its recent changes to the property tax system, some would suggest this is the thin end of the wedge with worse to come but in reality what is the point in alienating business leaders and rich individuals in the longer term? The likelihood is that all parties involved will learn to live with the changes as long as they are deemed to be fair and responsible – but if they are not, well that is another story!