Each region of the mainland UK has a property purchase tax. In England it is the Stamp Duty Land Tax (SDLT), in Wales it is the Land Transaction Tax (LTT) and in Scotland it is called the Land and Buildings Transaction Tax (LBTT). In the Middle of December 2022, the Scottish Government announced a change to the way they would calculate the LBTT liability for those buying second homes. Let’s take a look at the Scottish LBTT system and what the new changes mean.
Land and Buildings Transaction Tax Bands
Prior to the changes made on the 16th of December 2022 the following rates were payable for LBTT when buying a property:
- For properties valued up to Up to £145,000 – 0%
- For properties valued £145,001 to £250,000 – 2% of that portion
- For properties valued £250,001 to £325,000 – 5% of that portion
- For properties valued £325,001 to £750,000 – 10% of that portion
- For properties valued over £750,000 – 12% of the portion over £750,000
There is a first time buyer relief and first time buyers do not pay LBTT on properties valued at less than £175,000. For those buying one or more properties over and above their primary home there is what is called an Additional Dwelling Supplement (ADS) to be paid. This is only paid on properties that are valued at more than £40,000 but is paid on the whole property value. This was 4% under the previous rules. This meant that, anyone buying a property of £200,000 would pay an additional 4% of the purchase value, which is £8,000.
Calculating an example based on this £200,000 property value:
A first-time buyer pays no LBTT on the first £175,000 so only pay 5% of the remaining £25,000 which is £500
A home mover would pay 0% on the first £145,000 and then 2% on the remaining £55,000 which is £1,100
A person buying a second property would pay the £1,100 that the home mover would pay, but then also a 4% supplement which is £8,000. The total liability is then £9,100.
Changes to Land and Buildings Transaction Tax
In an attempt to generate more revenue to support first time buyers and to provide more property opportunities for them, the Scottish Government raised the Additional Dwelling Supplement to 6% for any property valued at £40,000 or more. Putting that into context, if we consider the purchase of the £200,000 property as calculated above the new amount of LBTT liability for a second property is, since the 16th of December 2022 much higher:
A person buying a second property would pay the £1,100 that the home mover would pay, but then also a 6% supplement which is 12,000. The total liability is then £13,100.
The rise in LBTT ADS will make a large difference to the overall tax liability for anyone buying a property that is in addition to their main residence. This will, according to the Government help them provide more support for first time buyers and give them a better opportunity to get on the property ladder.
