Over the last few days there has been much discussion about the new land and building transaction tax brought in by the SNP government in Scotland. This replaces stamp duty on all property transactions across the country and the detail is very interesting and marks a distinct change in policy going forward. So, how will be new property tax impact the market and will it be beneficial in the longer term?
Devolved powers to the Scottish Parliament
This change in taxation is a result of devolved powers to the Scottish Parliament under plans to give the Scottish government more control over taxes and general day-to-day policies. If this is a sign of things to come then those at the higher end of the earnings pay scale may experience significant pain in the medium to longer term. In simple terms, the SNP has targeted the higher middle classes and millionaires!
How will this impact the Scottish property market?
Interestingly the change in stamp duty will have a beneficial impact upon those at the lower end of the property market. Property transactions with a value under £135,000 will pay no tax and those between £135,000 and £250,000 will only pay a proportion at the 2% tax rate. There will be a 10% tax rate on amounts between £250,000 and £1 million with a 12% rate applicable on properties worth in excess of £1 million.
Quote from PropertyForum.com: “Is the UK paying the price for selling off council properties in the 1980s? “
As you might expect, this enormous change in stamp duty/land and building transactions tax is a hot topic across the real estate sector and estate agents in particular. In theory we could see those buying properties worth in excess of £1 million paying double the amount of tax they would have paid under the old stamp duty system. Whether Scotland’s higher earners will be comfortable with this long-term arrangement remains to be seen amid signs of disillusionment amongst the more wealthy of society.
Why has the SNP changed the stamp duty system?
After losing the recent referendum the SNP government has certainly made a lurch to the left looking to tax the rich to help support those at the lower end of the earnings spectrum. It is all good and well playing politics with tax and property but the fact remains that business leaders will feel they have been discriminated against and, perhaps, this is payback for the No vote?
There are already concerns that the change in property tax could lead to a budgetary black hole and actually reduce the amount of tax raised from the property market. At a time when austerity is everywhere, when budgets are being cut and the rich are being squeezed, the introduction of this particular tax seems ill-advised with questionable timing.
There is no doubt that property towards the lower end of the Scottish real estate market will likely benefit from the abolition of tax on properties worth under £135,000. However, when you look at areas such as Aberdeen, Edinburgh and other wealthy parts of the country it may sound strange but a property worth £1 million is not uncommon. Will this tax impact the aspirations of entrepreneurs and business leaders in Scotland? Is this payback time for a No vote in the recent referendum?