Land and buildings transaction tax to replace the UK stamp duty land tax (SDLT) in 2015

October, 2014

A new levy on land and building transactions to replace the UK stamp duty land tax (SDLT) was announced last week by the Scottish finance secretary, John Swinney, he claimed that the previous system encouraged tax avoidance, distorted the market and was ultimately outdated. Indeed Registers of Scotland data does show peaks in sales just below SDLT tax thresholds compared to very few sales just above those thresholds. The original percentage band, or ‘slab’ system of SDLT was initially introduced in 1997 and later added to in 2000 under Gordon Brown, the then Chancellor, as a way of income generation in response to rising house prices. It is hoped that the new system will create a fairer system and one that is proportionate to the buyer’s ability to pay. Crucially the new rates will only be payable on the portion of the total value which falls within each band.

In terms of those affected, buyers at the lower end of the property market will be liable for no tax payable on the first £135,000 of their house purchase, which represents a £10,000 increase from current SDLT figures. Advocates of the change believe this will encourage first time buyers and in turn stimulate the construction industry. For properties between £135,000 and £250,000 a tax of 2% will apply to transactions whilst a 10% rate will apply to those between £250,000 and £1m, and a staggering 12% above £1m.

The Scottish government has been keen to stress that 90% of homeowners will be better off, or at least unaffected by the current change in legislation. Interestingly, the crucial point at which homeowners will pay more are those purchasing a property above £325,000, whilst in fact under the new system those purchasing property in the lower bracket could be marginally better off as a result. To give you an example under the new system, somebody purchasing a £230,000 house will pay £1,900 in tax versus the current £2,300, whilst towards the other end of the scale those purchasing a £750,000 house will pay £52,300 in tax versus £30,000 under the current system. The new land and buildings transaction tax is due to come into effect on the 1st April 2015 leading some to speculate that the announcements may encourage a flurry of sales particularly towards the higher end of the market in an attempt to avoid the increase in costs.

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