Following recent moves made by the UK Government, last month SNP Finance Secretary, John Swinney, announced a 3% charge on the tax to be paid on the purchase of additional residential properties in Scotland on or after 1st April 2016. 

The additional supplement, expected to come into effect on 1st April 2016, will be set at 3% of the total price of the property (in addition to any Land and Buildings Transaction tax payable under the current rules), for anyone purchasing a second home or buy to let property above £40,000. 

The existing LBTT rates along with those for the proposed additional homes supplement are illustrated in the table below:-

Band Existing LBTT rates Additional Homes Supplement
(payable on the total price)
Up to £40,000 0% 0%
£40,001-£145,000 0% 3%
£145,001-£250,000 2% 3%
£250,001-£325,000 5% 3%
£325,001-£750,000 10% 3%
£750,001 and above 12% 3%

Examples:-

1. A buy to let investor purchasing a property in Scotland after 1st April 2016 at a purchase price of £150,000 would have to pay a total of £4,600 tax as opposed to paying only £100 tax if purchasing at the same price prior to 1st April 2016.
2. Purchasers buying a second home in Scotland after 1st April 2016 at a purchase price of £300,000 would have to pay a total of £13,600 tax as opposed to paying £4,600 tax if purchasing at the same price prior to 1st April 2016.

John Swinney has defended the proposal on the basis that such a move was required in Scotland in order to prevent buyers from elsewhere in the UK purchasing property in Scotland in order to evade the UK Government’s additional tax. His contention being that this would have made it more difficult for Scottish first time buyers to get onto the property ladder.

Without doubt, the supplementary tax will have a huge impact on the buy to let market and will only worsen the severe shortage of properties for lease that already exists in many areas throughout Scotland. This will, therefore, indirectly affect tenants who, after 1st April 2016 will find it increasingly harder to find properties available for lease.

It has yet to be confirmed as to exactly how the new measures will be implemented, how they will be monitored and whether there will be any further exemptions. The Scottish Parliament is currently consulting on such matters and more details are likely to be announced in the coming weeks. 

Our advice is clear, in order to avoid paying additional purchase tax on a second home or buy to let, purchasers should buy now to beat the deadline of 1st April 2016.

If you have any queries regarding this matter or wish to discuss a purchase please do not hesitate to contact Brian Smith.

Brian Smith 
Partner
Albany House, 58 Albany Street 
Tel:-0131 525 8680 Email:-brian.smith@simpmar.com

Posted by
Richard Loudon

Partner

0131 525 8616

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Simpson & Marwick is the trading name of the Residential Property Division of Clyde & Co (Scotland) LLP, a limited liability partnership registered in Scotland under number SO305618 and with its registered office at Albany House, 58 Albany Street, Edinburgh, EH1 3QR, United Kingdom. Clyde & Co (Scotland) LLP is authorised and regulated by the Law Society of Scotland and uses the word "partner" to refer to a member of the LLP, or an employee or consultant with equivalent standing and qualifications. A list of members is available at:clydeco.com.