From the 30th of June 2018, changes to the LBTT (Land and Buildings Transaction Tax) Scotland Act 2013 have gone in to effect. These changes have introduced tax relief to those buying property for the first time, when certain criteria are met. The move is designed to help first time buyers get on to the property ladder, which is becoming increasingly difficult as property prices rise in Scotland.
The updated LBTT Scotland Act has increased the tax free threshold for first time buyers to £175,000, which is a 21% increase on the previous level of £145,000. In addition to this, tax relief is available to those buying properties above £175,000, removing their liability to pay tax on the first £175,000. This equates to a saving of up to £600 for every first time buyer in Scotland.
Whilst the average house price in England is around £242,000, north of the border it is much lower with the average house price in Scotland currently at £148,512. The majority of first time buyers are likely to benefit from the tax free threshold on their first home, with an estimated 80% not having to pay anything. It is also thought that approximately 12,000 people will benefit from the higher threshold and tax relief every year.
A Welcome Move
Market conditions in Scotland make it difficult for first time buyers to get their foot on the property ladder. Therefore, any additional help can be of great benefit to those who dream of owning their own home. The new tax relief can be used in conjunction with other UK initiatives that offer a helping hand to first time buyers; for example, the Help to Buy ISA provides a 25% savings bonus from the UK government that can be used to contribute towards a deposit.
What Is LBTT?
LBTT is the property tax applied to transactions where land and buildings for residential and commercial use are sold. It is the Scottish successor to Stamp Duty, the property tax in England and Wales, and was first introduced in April 2015. Whilst property prices are different between the countries of the UK, the UK government provides higher levels of tax relief from Stamp Duty, with the threshold set at £300,000 (a £500,000 level applies in London as property prices are significantly higher in the capital).
LBTT is a self-assessed tax, meaning the buyer must report their own liability to Revenue Scotland, the body responsible for the collection of all taxes that are devolved to the parliament in Scotland. Currently, LBTT and the Scottish Landfill Tax are the only two taxes it is responsible for.
Scottish Housing Shortage
The increase in the LBTT tax threshold comes at a time when house prices are increasing in Scotland due to a shortage of residential property within the Scottish housing market. Without an increase in supply, demand will push up prices further. Companies such as Swan Group are helping to combat this problem by investing in new residential property. For example, its Cumbernauld development is converting 59 retail and commercial units into 59 flats. The company’s co-founder, Brian Weal, has over 30 years of experience working in the finance sector, which puts the company in a strong position to provide these much-needed developments in Scotland.