On 28 January the Scottish Government published the Land & Buildings Transaction Tax (Amendment) (Scotland) Bill. This follows the announcement by Scotland's Finance Secretary in the Scottish budget in December 2015 that Scotland would follow the steps announced by the UK chancellor in charging additional Land & Building Transaction Tax (LBTT) (Scotland's equivalent of stamp duty) on second homes and buy to let properties.
Land & Building Transaction Tax rates
It is intended that the additional land & building transaction tax rates will apply to transactions which settle on or after 1st April 2016 where the missives were concluded (i.e. the contract was entered into) on or after 16 December 2015. The additional tax will amount to a further 3% on the price. The levy will also apply to any transactions where the price is between £40,000 and £144,999 where currently no LBTT is paid. Transactions below £40,000 will remain outwith the scope of LBTT.
The additional rates will apply where, at the end of the effective date of a transaction (i.e. the date of entry), a buyer owns more than one dwelling and the buyer is not replacing their only or main residence. If the buyer is not an individual (e.g. a partnership, company) then the additional rates will apply. Similarly if the buyer is an individual who buys properties as part of a business then the additional rates will apply. The additional rates will also apply if ownership of a property is taken in the names of a buyer's spouse or civil partner, cohabitant or a person aged under 16 who is a child of the buyer, the buyer's spouse or civil partner or cohabitant.
The additional rates will result in a significant increase in the amount of LBTT paid in respect of a transaction. For example, a purchase at £120,000 will result in a charge of £3,600 if it is a second home or buy to let investment. If it is bought as a main residence the LBTT charge would be nil.
The average house price in Scotland is £165,197.? A second home or buy to let property at that price would attract LBTT of £5,358 instead of £403.
In certain circumstances it is possible to apply for a refund of the additional LBTT. For example, if a buyer purchases a new property as their main residence but have not yet sold their existing main residence then, if that property is sold within 18 months, the buyer can apply for a refund of the additional LBTT. Buyers should be aware, however, of the need to pay this additional tax and take account of that when budgeting for their move.
We would encourage our clients to act quickly if they wish to avoid the additional charge and speak to your usual TC Young contact to see if it is possible to settle your transaction ahead of 1st April 2016.
If you would like more information or advice on Land & Building Transaction Tax , please contact our private client team.
Photo by James Barker, courtesy of freedigitalphotos.net
