As we discussed in a recent blog, Stamp Duty Land Tax (SDLT) on the purchase of property is to be replaced in Scotland by the new Land and Buildings Transaction Tax (LBTT). The change is due to come into force on 1st April 2015.
Yesterday, however, the Chancellor announced immediate changes to the current UK SDLT regime which will affect Scotland from now until the introduction of LBTT in April. Both new regimes will use a graduated system similar to the current UK income tax system. This differs from the SDLT system when, until now, tax rates were assigned to certain price bands and were applied to the whole purchase price.
According to the Government, 98% of UK homebuyers will now pay less in SDLT under this new system. Only those purchasing property for over £937,000.00 will be negatively affected by the changes.
By way of example, imagine you are purchasing a new home for £400,000.00. The tax liability under the old and new SDLT systems, and the future LBTT system, would be markedly different -
A) Old UK SDLT Regime
Property in £250,000 - £500,000 band @ rate of 3%
TOTAL SDLT LIABILITY = 3% X £400,000 = £12,000
B) New UK SDLT Regime
First £125,000 @ 0% = £0
£125,000- £250,000 @ 2% (=£125,000 @ 2%) = £2,500
£250,000- £400,000 @ 5% (=£150,000 @ 5%) = £7,500
TOTAL SDLT LIABILITY = £10,000
C) Scottish LBTT Regime (using proposed rates)
First £135,000 @ 0% = £0
£135,000- £250,000 @ 2% (=£115,000 @ 2%) = £2,300
£250,000- £400,000 @ 10% (=£150,000 @ 10%) = £15,000
TOTAL LBTT LIABILITY = £17,300
As you can see, there would now be a significant tax saving on the above purchase! However, if you were to purchase after April, the proposed LBTT rates would result in a much higher liability. If you are considering purchasing a property in the near future, it may be wise to move quickly in order to take advantage of the new rules before the new Scottish tax comes into force.
For more information or advice on stamp duty land tax reform, buying a property, and any tax payable, please get in touch.
