The early stages of the COVID-19 pandemic essentially halted the Scottish residential property market for the first time in living memory. Due to this, the market is experiencing a resurgence with many properties, particularly those in the capital, selling at closing dates with prices often 10% - 20% above the Home Report valuation. This hiatus, coupled with the Scottish Government’s recent decision to increase the nil rate band on Land and Buildings Transaction Tax (LBTT) to £250,000, means that many buyers have decided to purchase this year. If you fall into this category you may have questions on buying in the current climate and the LBTT and Additional Dwelling Supplement (ADS) rules. We will attempt to cover the most common questions in this article.
Is this a good time to buy?
This is obviously a difficult question to answer as we are living in unprecedented times. It could be argued that the current market is an artificially inflated bubble and next year may see a pullback in prices. However, with an unpredictable stock market we have seen a growth in property investment, particularly from overseas investors in the capital, so any pullback may be short lived. It often depends on where you intend to purchase, and our residential property team will be able to advise you on this should you wish to get in touch.
What taxes am I liable to pay on a property purchase currently?
Any properties purchased from 15 July 2020 will pay a reduced rate of LBTT until 31 March 2021. If you’re buying your main home, you will pay no LBTT on purchases under £250,000. If you’re buying an additional property, you might need to pay an extra 4% ADS on the total purchase price of the property, as well as the standard rates of LBTT that may apply.
What is Land and Buildings Transaction Tax?
LBTT is a tax that may be applicable when buying a residential property or piece of land in Scotland (previously known as Stamp Duty).
If you are buying your main property prior to 31 March 2021, you will pay no LBTT on properties costing up to £250,000. This will apply if you’re a first-time buyer or if you have owned a property before. Properties costing more than £250,000 will incur LBTT based on the value of the property.
If you’re buying a second home, you may need to pay ADS of 4% based on the total purchase price of properties costing more than £40,000.
What is ADS?
ADS or Additional Dwelling Supplement is a Land and Buildings Transaction Tax on second homes.
Buyers of additional residential properties, such as second homes, will have to pay an extra 4% on the total purchase price of properties costing more than £40,000.
Due to the increase in the starting threshold and where the ADS does apply, the change to the starting threshold will also apply to property transactions. This means that a residential property transaction that is liable to the ADS will not pay the standard rates of LBTT on the first £250,000 of the purchase, however the ADS will remain payable at 4% of the total purchase price.
What should I do next?
If you are actively watching the market or viewing properties we recommend you get in touch as soon as possible to discuss your situation, as many properties are selling within a matter of days of being marketed. We would also be delighted to answer any other questions you have on the purchase process. The primary contacts in our residential property team are Partner, Greig Honeyman and Senior Associate, Phil Harris.