LBTT

LBTT delivers third highest monthly revenues total

A seasonal upturn in property market activity has delivered a £57 million boost to Scottish Government revenues, generating the third highest monthly return since the Land and Buildings Transaction Tax (LBTT) was introduced.

According to the latest figures reported by Revenue Scotland and analysed by the Scottish Property Federation, revenues from LBTT in June 2018 hit a total of £57m, which is over £14m more than May’s total and more than £13m up on June 2017.

The largest increase in revenue came from the commercial property sector, which in total generated £21.8m. This is £8.1m up on May 2018 and £10.7m up on June 2017.

The residential element of LBTT generated £24.1m in June 2018 – a rise of £4.7m on May’s figures and £0.8m up on June last year.

The additional dwelling supplement continues to play a strong role in the overall figures and increased in June to £11m.

The Scottish Government’s draft budget expects that LBTT will generate £588m in total during 2018/19, an increase of £25m (4.5%) on the 2017/18 LBTT revenue total.

The Scottish Property Federation said revenues have still slightly underperformed against the Scottish Government’s expected trends for the main residential market.

David Melhuish

David Melhuish, director of the Scottish Property Federation, said: “This year, the Scottish Government expects to see a 17.5% annual increase in revenue from the residential sector, and a slight drop in revenue from the commercial property market.

“However, in the first three months of this tax year to June, we have seen revenues slightly underperform against the Scottish Government’s expected trends for the main residential market. Despite a good month in June for the government, residential LBTT revenues fell below 2017/18 levels in both April and May, but with some of the busiest months for the residential market still to come the government will have an opportunity to make up ground.

“Meanwhile, the commercial market is showing initial signs of being better than forecast and so far, this year has generated just over £10m more than in the same period in 2017/18. The additional dwelling supplement also continues to deliver better than expected revenue for the government, albeit with some 19% now refunded to taxpayers since its introduction in April 2016.

“For now, it will be steady as it goes for the government, but there is considerable dependency on the £325,000 to £750,000 residential market band, which supports nearly 60% of residential LBTT revenue, based on less than 10% of the total number of sales. Should this section of the market stall, as in 2015/16, then there could be a significant impact on revenue.”

Proposals to extend LBTT relief to property investments ‘common sense’, says tax body

Moira Kelly

The Chartered Institute of Taxation (CIOT) has welcomed Scottish Government plans to consider the introduction of a new relief from Land and Buildings Transaction Tax (LBTT) for investors such as pension funds and insurance companies that invest in Scottish property.

The CIOT said the move to introduce ‘seeding relief’ would bring Scottish legislation into line with the rest of the UK and help encourage investment by fund managers in Scottish-based property as a result of the equalisation of tax treatment across the UK.

However, the Institute also cautioned Scottish Ministers against the blind repetition of current UK rules, citing ongoing issues between government and industry over the mechanism used to recover (‘claw back’) taxes owed in cases where funds are no longer eligible for tax relief.

Seeding relief – if introduced – would exempt certain types of funds, known as Property Authorised Investment Funds (PAIFs) and Co-Ownership Authorised Contractual Schemes (CoACS) from LBTT in transactions involving the transfer of properties from existing portfolios or into new ones.

These funds are investment vehicles used by institutional investors to make it easier to encourage collective investment in property.

Moira Kelly, chair of the CIOT Scottish Technical Committee said: “By choosing to consider the introduction of reliefs similar to those already in force elsewhere in the UK, the Scottish Government is adopting a common sense approach that will streamline and improve the efficiency of the LBTT regime. This will provide greater simplicity and certainty for taxpayers.

“Mirroring the regime in the rest of the UK will also make it more likely that property investors will consider including Scottish properties in their portfolios. With different – and more commercially advantageous rules available elsewhere in the UK – investment managers are currently wary of investing in Scotland for fear of the additional tax charges their clients will face.

“But as we have seen with issues relating to ‘claw back’, there are certain aspects of this regime that are seen as unfit for purpose. In these circumstances, it will be important to consider whether a change in approach, either in line with the rest of the UK or more reflective of Scottish circumstances, will strike a balance between good tax policy and the need for simplicity, efficiency and ease of compliance.

“Nevertheless, introducing this relief in Scotland is a pragmatic move and one likely to incentivise the attractiveness of Scottish property as part of wider investment portfolios”.

The Scottish Government’s consultation closes today (August 2).

CALA Homes reveals LBTT offer to homebuyers

CALA’s Ravelrig Heights development in Balerno

A housebuilder is offering homebuyers in the east of Scotland the chance to buy a home without having to pay the full Land and Buildings Transaction Tax (LBTT).

In many cases, CALA Homes (East) is even covering the entire cost of the tax applied to the purchase of a home, at a number of its developments across Edinburgh, Midlothian and East Lothian – on reservations made by January 31st.

LBTT replaced Stamp Duty Land Tax in Scotland in 2015, and is a tax applied to residential land and buildings transactions over £145,000 (when the property purchased is your only home). Recent changes in tax-bands mean that £13,350 is now due for a house bought for £400,000, for example.

The view from a home at Liberton Grange in Edinburgh

CALA said its ‘Life Less Taxing’ offer aims to allow homebuyers to make their dream move with more certainty and without added financial stress.

Philip Hogg, sales and marketing director at CALA Homes (East), said: “We fully understand that a house move can be stressful with many upfront costs to take into account.

“The tax can require large cash reserves and can even put a move back months if not years, or possibly make it unaffordable altogether.

“This kind of support is not available in the second hand market so we’d encourage potential purchasers to find out how CALA can help make their dream move possible.

“At this moment we have an especially wide range of luxury developments throughout the region appealing to downsizers, young professionals and busy families alike.”

Last year Mactaggart & Mickel Homes said it will pay the LBTT for first-time buyers purchasing homes priced at up to £300,000 until the end of April 2018.

Mactaggart & Mickel Homes to pay LBTT for first-time buyers in wake of Budget

A Mactaggart & Mickel Homes development at Millerhill

A Mactaggart & Mickel Homes development at Millerhill

Scottish housebuilder Mactaggart & Mickel Homes has responded to the UK government’s announcement on stamp duty by announcing that it is following suit to help first-time buyers get on the housing ladder.

In his budget announcement on Wednesday, Chancellor of the Exchequer Philip Hammond made first time buyers in England exempt from stamp duty on the first £300,000 of the purchase price.

From today, Mactaggart & Mickel Homes said it will pay the LBTT, the Scottish equivalent of stamp duty, for first-time buyers purchasing homes priced at up to £300,000 until the end of April 2018.

According to the housebuilder, a family business with over 92 years of design and construction expertise with developments in Edinburgh, Midlothian, Glasgow, Ayrshire and the Clyde coast, a first-time buyer in Scotland can currently expect to pay £4,600 of LBTT on a £300,000 property.

Joanne Casey

Joanne Casey

Director Joanne Casey said: “Although the Scottish budget won’t be revealed until mid-December, we have taken the decision to act immediately and pay the LBTT for first-time buyers on homes priced up to £300,000. This will help more first-time buyers get a foot on the property ladder, by saving them up to £4,600 when buying a Mactaggart & Mickel home.”

The firm’s announcement comes a day after a First Minister’s Questions session during which Nicola Sturgeon hinted that she would not copy the Chancellor’s move outright, but that alternative option was being examined.

She told MSPs: “As we finalise our budget in the next couple of weeks we will consider whether or not it is appropriate to give any further assistance to first time buyers.”

She indicated a tax break on purchases of up to £175,000 would help an equivalent level of first time buyers in Scotland as the £300,000 figure would in England.

The current threshold for paying LBTT is £145,000.

Blog: The Land and Buildings Transaction Tax is killing the Scottish housing market

Ken McEwan

Ken McEwan

Ken McEwan says we all face having to pick-up the tab for what he refers to as the Scottish Government’s “botched” Land and Buildings Transaction Tax as he appeals for an urgent reform to the property tax.

When the Scottish Government introduced the Land and Buildings Transaction Tax as a replacement for Stamp Duty in 2015, I predicted demand for second homes and buy-to-let properties could fall by up to 50%. It gives me no great pleasure to report that I was right.

Our most recent sales figures show that, in the first year of the tax, sales in those categories halved. We have also seen a 25% drop in demand for homes worth over £500,000 and a fall of 40% in demand for £1 million plus properties. At this end of the market we’re witnessing a virtual stagnation.

The Scottish Government introduced the tax as a copycat measure for a similar levy introduced by the Conservative Government at Westminster.

The LBTT imposes a charge of 2% on homes worth more than £145,000 up to 12% on those which sell for more than £750,000. Buyers of holiday homes, buy-to-let properties and other second homes are charged an additional 3% under the Additional Dwelling Supplement (ADS).

Such punitive rates could be justified in England, particularly in the South East, where there’s a problem with first time buyers gaining a toehold on the property ladder due to inflated prices.

Ministers have a particular policy ambition of cooling down the London market which is distorted by the presence of rich, foreign owners many of whom don’t even live in the properties they buy.

In Scotland the market is entirely different; houses are more affordable compared with average earnings and there’s a shortage of rental property. In the major cities such as Edinburgh, it’s difficult to secure a rental property. Students, professionals, foreign nationals and those on benefits are all competing for the same available rental lets.

The Scottish Property Federation (SPF) has calculated that revenues generated by the LBTT in the past year are £57m down on Scottish Government forecasts because of fewer sales.

Before its introduction, ministers estimated the tax would raise £1.8bn from residential sales by 2021. That has since been revised down to £962m, a drop of 46%.

Any school pupil studying economics will tell you that when taxes rise, consumers change their behaviour accordingly, so it should be no great surprise to ministers that homeowners, faced with a massive increase in the cost of moving house, are opting to stay put.

The Royal Institution of Chartered Surveyors (RICS) said last month that the property market in Scotland was ‘stagnant’ with a fall in the number of new instructions.

A survey by The Halifax, published this week, shows that planning applications for home extensions have risen by 183% in the past five years as homeowners opt to upgrade their existing properties.

Someone buying a home worth £400,000 faces a transaction tax bill of £25,300 which is seen by many as a massive disincentive to move, particularly if they haven’t yet sold their own property.

Buyers earning £50,000-a-year will have to raise the equivalent of their annual salary just to meet the cost of the property tax. It’s clogging up the market right across the property bands.

In June Derek Mackay, the Scottish Finance Secretary hinted at the prospect of a u-turn on the tax by raising the thresholds at which the bands kick-in but there has been no word since and the longer he sits on his hands, the more the slowdown will persist.

The greatest negative impact has been on the purchase of second homes and buy-to-let properties. Tax revenues are small compared with the high risks of restricting liquidity in the buy-to-let market and the knock-on effects on other businesses that rely on a buoyant property market.

Before the LBTT and the ADS were introduced, a Council of Mortgage Lenders survey showed that 79% of properties bought with a buy-to-let mortgage were for those worth less than £145,000.

It was clear then that the introduction of the ADS, which had no consideration for progressive bandwidths, would significantly add to transaction costs and undermine market liquidity.

Though definitive figures have yet to be published, anecdotal evidence suggests the effect has been to reduce the number of buy-to-let landlords, unwilling to take on the extra cost, and to increase rents to cover the rising costs of ownership.

Some landlords with highly-geared portfolios have made losses and are in the ridiculous position of having to pay tax on those losses. This has happened at a time when they have had to weather changes to the Private Housing (Tenancies) Bill, based on improving tenant rights with no consideration for the financial risks and challenges faced by landlords from rogue tenants.

Many landlords are taking the view that they’ve had enough. The LBTT and the 3% ADS are part of a bigger picture which also includes significant reductions in mortgage interest relief and the removal of 10% ‘wear and tear’ relief.

With a significant reduction of available lets in the private rented sector, the Scottish Government will be forced to meet that housing shortage at considerable cost to taxpayers.

  • Ken McEwan is chief executive of Edinburgh-based estate agency McEwan Fraser Legal

Builders warn of housing activity slowdown ‘unless LBTT band is extended’

construction stockScotland’s home building industry is warning ministers of a drop in future housing market activity unless the Land and Buildings Transaction Tax (LBTT) band is extended.

Homes for Scotland (HFS) repeated its call for the extension of the current 5% band in order to address the ‘considerable drop’ in activity at the higher end of the property ladder as new figures revealed Revenue Scotland collected £55 million less than expected in receipts from LBTT.

The trade body said the drop has occurred as buyers either can’t afford it or consider the ‘perceived punitive nature’ of the tax and choose to stay put.

Nicola Barclay, chief executive of HFS, said feedback from its members “shows that the present system (which varies considerably from that south of the border) is creating significant barriers”.

“As we have expressed in submissions to the Scottish Government and Scottish Parliament, if we are to have a healthy and well-functioning housing market, we need a tax framework that enables movement up and down all price levels,” she said.

“Whilst in volume terms this may currently impact only a relatively small number of customers, the concern must be that, if aspirational buyers are unable or indeed choose not to move, this will create blockages lower down and place more pressure on the price of the fewer homes that do come on the market.

“Not only will this distort the market, it will also ultimately exacerbate the housing crisis. Clearly, this is not good news for the three quarters of Scots who wish to own their own home and will also only serve to put further pressure on the social and private rented sectors.

“Crucially, however, as we see from today’s Revenue Scotland report, LBTT also has a massive impact on the Budget and public finances. If the Scottish Government acts to boost activity at the higher end of the market, we believe it would result in a greater tax take than is being achieved at present.”

Analysis of the figures by the Scottish Property Federation (SPF), show that Scottish Government’s residential property revenue returned to pre-LBTT levels last month though commercial property tax revenue was critically low.

Revenues rose in August by £5.2m on July, to £52.8m. This was a jump of £11.6m on the same month in 2016, making it one of the highest total monthly revenues generated from LBTT since the tax came into effect in April 2015.

Residential revenue rose to £28.5m with the second homes tax, the additional dwelling supplement, bringing in £12.1m.  If sustained, residential revenue for 2017 (not including the second homes tax) will surpass the £270m of residential revenue raised in the last year of SDLT for the first time since LBTT was introduced).

This improved revenue is a result of a recovery to pre-LBTT levels of sales of residential properties above £325,000, and a further rise in revenue from the Additional Dwellings Supplement ‘second homes’ tax.

LBTT revenue from commercial property sales rose for the first time in five months, standing at £12.5m.  However, 2017/18 remains a poor year for commercial LBTT (£65.4m) as the total value of LBTT still lags behind 2016/17 (£67.7m) and 2015/16 (£71m).

David Melhuish, director of the Scottish Property Federation, said: “The Scottish Government will be pleased to see that over the summer tax revenues from higher value residential sales have returned to pre-LBTT levels. When added to the windfall generated by the second homes tax (ADS), it is clear the government will expect to reach its 2017-18 LBTT revenue targets, even if weighed down by below-par commercial LBTT figures.

“However, crucially, leading agents are reporting a significant fall in higher value properties coming to market – reducing economic activity and adding pressure on house prices.

“We strongly believe that if the 10% residential threshold in Scotland is raised from £325,000 to £500,000 we would see more tax transactions, which could further boost to both government revenues and market activity.

“Whilst the residential figures are showing signs of improvement, the SPF remains concerned that Scotland’s commercial property market sector continues to show low levels of transactions, particularly for investments above £5m.  This is now affecting government revenues with commercial LBTT set to significantly under-shoot its forecasts for the second year running.”

A link to the SPF’s full report can be found here.

Revenue Scotland annual report reveals LBTT shortfall

homes-for-sale-450x209Tax professionals have welcomed another strong performance from the body charged with administering and collecting Scotland’s devolved taxes but cautioned that the numbers are likely to fuel further concerns over the Scottish Government’s flagship Land and Buildings Transaction Tax (LBTT).

Revenue Scotland’s annual report for 2016/17 showed an increase in the total overall amount of tax collected from £572 million in 2015/16 to £633m in 2016/17, with the total overall amount of tax collected since Revenue Scotland’s creation in 2015 passing the £1 billion mark.

It was also reported that 98.8% of tax returns were submitted online, compared with 98.1% in 2015/16, with more than 93% of tax payments made on time.

Meanwhile, receipts generated from Scottish Landfill Tax (SLfT) outperformed forecasts, generating £149m – £16m more than forecast.

However, despite an increase in the total amount of revenue generated from the LBTT property tax between 2015/16 and 2016/17, the £484m generated was £54.4m less than the Scottish Government’s own forecasts contained in its 2016/17 budget.

The figures are likely to further fuel opposition to the new tax which last week was targeted for criticism by estate agents Savills which said it had curtailed the million pound market in Scotland.

Another survey carried out by law firm McEwan Fraser Legal found that one in five potential Scottish homebuyers has cited the  new property tax as a reason for their decision not to move in the past two years, with two thirds branding it ‘unfair’.

Responding to today’s Revenue Scotland report, Moira Kelly, chair of the CIOT Scotland Technical Committee, said: “2016/17 has been another year of progress and achievement for Revenue Scotland as it gets to grips with Scotland’s devolved tax powers.

“There has been an almost across the board upturn in the organisation’s performance, with more tax collected, increased compliance and enforcement activity and more and more people submitting their returns online and on time.

“But while Revenue Scotland has overseen increases in the overall amount of LBTT and SLfT generated, it’s impossible not to note the discrepancies between the actual amount of LBTT generated and the amount that was initially forecasted by Scottish Ministers in the budget for 2016/17.

“Forecasting is – as we often hear – a very inexact science, but these figures are likely to fuel further concerns relating to the vulnerability of LBTT receipts and the potential impact that this may have on future Scottish budgets.”

Finance secretary Derek Mackay said: “Revenue Scotland has continued to operate effectively and efficiently, with operating costs lower than last year and more than £1bn of tax collected over its first two years of operation.

“The report indicates that £633m was collected across the fully devolved taxes in 2016-17. That revenue has helped to fund our vital public services and support our ambition to create a more successful country, with opportunity for all to flourish through increased sustainable economic growth.”

Revenue Scotland chairman Dr Keith Nicholson said: “The total tax collected in 2016-17 shows an increase of over 10% compared to our first operating year, contributing even more to Scotland’s public services.”

“An important milestone was also reached, with the amount of tax collected by Revenue Scotland in its first two years of operating exceeding £1bn. The total transferred to the Scottish Consolidated Fund between 1 April 2015, when operations began, and 31 March 2017 was £1.15bn.”

A Scottish Government spokesman added: “A total of £633m was collected in 2016-17, which represents £61m more in income – a rise of 10% – than was delivered in the previous financial year.”

Scottish Government ‘£100.6m short’ on LBTT predictions

David Melhuish

David Melhuish

The returns for the Scottish Government’s Land and Building Transaction Tax (LBTT) returns in February 2017 generated the lowest LBTT revenue of any other month in 2016/17, official figures have shown.

Analysis of the Revenue Scotland figures by the Scottish Property Federation (SPF) highlighted that returns were £31.9 million, down from £34.2m in January.

According to the statistics, revenue from residential LBTT increased slightly by £0.3m to £20.7m where commercial LBTT decreased to £11.2m – £2.6m less compared to January.

The Scottish Government expected to generate £538m from LBTT this tax year meaning an £121m increase on the 2015/16 outturn. Targets are still £100.6m short with just one month left in this tax year.

Additional Dwellings Supplement (ADS) were however up slightly with revenue for February totalling £7.4m compared to £7.1m in January. For the year to date £82.7m has been raised.

David Melhuish, director of the Scottish Property Federation, said: “Revenue for February has been the lowest to date for LBTT which will be extremely disappointing for the Scottish Government. £100.6m still has to be raised by next month in order to meet the £538m target set at the beginning of the tax year, a figure we fear will be a struggle.

“This isn’t a great surprise as there has been a much lower level of commercial property sales but the evidence from members also tells us that the higher value residential markets continue to struggle across much of the country, so we continue to call for the 10% tax threshold to be raised from £325,000 to £500,000 in order to support greater numbers of transactions at these levels of the market..  The position for the government would be a lot worse without the new additional homes LBTT tax. Without this additional £82.7m, the LBTT figures would be even further from its predicted target.”

Lower LBTT revenues ‘support case for increased residential change’

David Melhuish

David Melhuish

Receipts from the Scottish Government’s Land and Buildings Transaction Tax (LBTT) may fall below government estimates at the end of the 2016/17 financial year, according to official statistics.

Provisional figures for January 2017, released by Revenue Scotland and analysed by the Scottish Property Federation (SPF), have shown that LBTT revenue dropped £16 million between December 2016 and January 2017 to £34.3m.

SPF argues that the revenue decrease makes it very difficult for the Scottish Government to meet its LBTT forecast for 2016-17 and potentially in the following years currently set out in the draft Budget.

In December the Scottish Government reduced its expectations for LBTT revenue, particularly from the residential sector, however, evidence is growing that even these reduced targets will be difficult to achieve as it is becoming clearer that non-residential returns of LBTT are likely to be substantially less than they were in 2015-16.

Non-residential property transactions in particular have fallen, reflecting wider data on reduced commercial property investment transactions over the past two years. In the residential sector, after a period of significant growth in the number of higher value transactions from 2012 until April 2015, the markets have stagnated in terms of numbers and total values. This has meant that the forecasted growth in residential LBTT has not materialised.

David Melhuish, director of the Scottish Property Federation, said: “A weaker commercial property transaction market is the main driver behind these lower LBTT returns.  However, the failure to increase transactions and revenues at the higher value residential market is also weighing down on Scottish Government LBTT expectations.

“Without the new Additional Dwelling Supplement (ADS) second homes tax, the Scottish Government would be seeing much lower returns of LBTT than was achieved in its first year of operation in 2015-16.

“We have welcomed the government’s decision to maintain a slight competitive advantage with commercial property transaction taxes in the rest of the UK – in a period of weaker commercial transactions this is critical.

“We think an increase in the 5% residential LBTT band threshold to £500,000 from its current, relatively low, level of £325,000 could help to stimulate a growth in transactions in the £400,000 to £750,000 range. This would help both the market and wider economy.”

LBTT ‘operationally successful’ but too early to assess impact on market

National Housing Trust programme stock homesScotland’s transition to the new Land & Buildings Transaction Tax (LBTT) was “operationally successful” but it is “too early to draw any definitive conclusions” on its impact on the property market, MSPs on a Holyrood committee have said.

A report by the Scottish Parliament’s finance and constitution committee scrutinised the first year of LBTT, which replaced stamp duty in Scotland in April 2015.

The majority of stakeholders who contributed to the parliamentary inquiry agreed that the rates had been of benefit to the first time buyer housing market.

Finance secretary Derek Mackay told the committee that nearly 9,700 homebuyers who would have had to pay stamp duty did not have to pay LBTT when buying a home, and that a further 41,700 paid less as a result of changes to the charges for properties costing between £145,000 and £325,000.

Now MSPs want to know the impact the change has had on the first-time buyer market, as there are no fees on properties worth up to £145,000, and if this has contributed to increased house prices.

They also suggested the government’s review of the LBTT should consider if there is any behaviour response in relation to properties costing between £325,000 and £750,000, where the charges have increased.

Ministers have also been asked to respond to claims from the Scottish Fiscal Commission that the market for homes in that bracket “remained subdued” throughout most of the fiscal year.

Finance and constitution committee convener, Bruce Crawford MSP, said: “It’s reasonable to say year one of the LBTT went smoothly and was operationally successful. That said, a key challenge for us has been the lack of consistency in the presentation of data relating to LBTT. That made it difficult to compare forecast and outturn data and to fully assess the tax’s impact on the property market in Scotland.

“There are also challenges in identifying ‘causality’ for the changes seen in the housing market – in short, it’s difficult, based on the data, to separate out the impact of LBTT rates and bands from extraneous factors, such as the general economic situation.

“Our committee therefore recommends that the Scottish Government’s review of the first year of LBTT includes an analysis of the behavioural response to LBTT, particularly in relation to homes costing between £325k and £750k. This should include an assessment of the likelihood of an on-going response and an analysis of the impact of extraneous factors.”