By Rodney Whyte, partner and residential property specialist at Pinsent Masons
SCOTLAND’S Finance Minister Kate Forbes yesterday picked up the property tax gauntlet thrown down by Chancellor Rishi Sunak and announced she was raising the threshold on Land and Buildings Transaction Tax (LBTT) paid by home buyers.
The Chancellor on Wednesday delivered a welcome boost for home owners and the construction industry in England when he confirmed there would be a nine month holiday on Stamp Duty Land Tax (SDLT) during which no tax would be paid on house purchases up to £500,000.
In his mini-Budget speech, the Chancellor said property transactions had fallen by 50 per cent in May, adding: ‘House prices have fallen for the first time in eight years, uncertainty abounds in the market. A market we need to be thriving, we need people feeling confident, confident to buy, sell, renovate, move and improve, that will drive growth, that will create jobs’.
Despite reports to the contrary that LBTT (Scotland’s equivalent to SDLT) would remain unchanged, Ms Forbes delivered a helping hand to Scotland’s construction and property sector by announcing the tax would only be paid on homes valued at more than £250,000 (previously it was £145,000).
Ms Forbes told Parliament: ‘I have listened to calls for me to raise the starting threshold to LBTT to help stimulate housing market activity and the economy. It is important though, that any change made in Scotland, is focussed directly on the particular needs of the Scottish economy’.
She claimed the threshold change would mean ‘that 8 out of 10 people purchasing a property in Scotland will be taken out of LBTT, excluding the additional dwelling supplement, and all home movers purchasing a property above £250,000 will be £2,100 better off’.
But what seems on the surface to be a very positive move, risks causing confusion and uncertainty in the market because the Minister did not put a date on when the changes come in to force. At the time of going to press it was also unclear how long this LBTT relaxation would last.
Ms Forbes said the change would not be immediate because legislation needed to be changed and Revenue Scotland needed to be prepared to manage and collect the tax – contrasting sharply with Mr Sunak’s decision to raise the Stamp Duty threshold immediately.
It begs the question – who is going to commit to buying a home in the near future when they may benefit from the upcoming LBTT change if they hold off. And what about home buyers just about to conclude missives – they will surely be aggrieved that they may lose out on a significant savings, by weeks or even days, if they proceed with their purchase.
For the property sector the cumulative effect of this lack of clarity is that house buying and selling will likely temporarily grind to a halt – as opposed to gaining a welcome and much needed immediate stimulus.
I broadly welcome the changes announced by the Scottish Government and it will encourage house buyers – spooked by Covid-19 related job security worries – to feel more confident about their first or next property move. Once the changes kick in, the construction industry will also benefit from the trickle-up impact of a reinvigorated housing market and crack on with developments which have been put on ice during lockdown.
But I do wonder if the Minister could have been a bit bolder in taking a much more innovative approach to shaping our housing market? Perhaps additional value to our economy could have been achieved by a more ambitious albeit time-limited LBTT relaxation on new-build homes to create a genuine stimulus in the construction sector. This would recognise the huge importance of the construction sector in Scotland and the economic activity that is generated by the construction of new homes, not to mention the continued need (notwithstanding recession) of more homes being required in Scotland.
Also, a bolder, more innovate approach might be to align LBTT incentives to the purchase of new (and possibly second hand homes) linked to stretching energy efficiency targets. This would encourage housebuilders/sellers to make homes even more efficient and give buyers the benefit of buying into that stock with LBTT relaxations – and in so doing create a greener housing stock by carrot rather than by stick.