In 2015 the Scottish Government introduced the Land and Buildings Transaction Tax (LBTT), new tax brackets implemented in a bid to save homebuyers thousands of pounds and help get them on the property ladder.

Introduced in 2015, LBTT was the first domestic tax charged in Scotland in more than 300 years, since the Act of Union, a response to powers over stamp duty becoming devolved.

The Scottish government hailed LBTT as a “more progressive” replacement to stamp duty that would benefit the “vast majority” of buyers.

However, since its introduction, industry experts have criticised the tax charge claiming it has caused problems for both buyers and sellers, especially those in the middle and top tier who find themselves more highly taxed on properties.

Although initially designed to ensure tax was more proportionate to the property price, LBTT has failed to raise as much revenue as was expected and has faced criticism for disenfranchising some buyers. Some experts have stated the tax could result in as much as £45,000 being added to the cost of a £1 million home in Scotland.

Official figures show that property sales in the top tiers of the housing market have fallen since the tax was introduced, equating to around £800 million less than predicted over a government term.

The Council of Mortgage Lenders found that the number of people moving homes in Scotland has fallen by 8% compared to last year.

These figures suggest the property market in Scotland is stagnating because of this unfavourable tax.

A recent survey by RICS found similar data that shows “a bottleneck in certain areas of the market […] encouraging property owners to eschew moving in favour of improving their current properties.”

The surveyors called for urgent action from the Scottish government to address the problems by reviewing the tax bands and get the market moving once more.

The Scottish government contested RICS’ findings arguing that their data was not representative and that the Scottish property market was in fact performing better than elsewhere in the UK. They suggested that “93% of taxpayers have paid either less tax compared to SDLT (stamp duty land tax) or no tax at all.”

However, it seems that the calls for reform are being heard with a possible government U-turn on the cards.

Finance Secretary Derek Mackay said he was willing to look at reconsidering the bands for Land and Buildings Transaction Tax (LBTT) which could save home buyers thousands of pounds.

He has expressed plans to raise the upper limit of the 5% band to £500,000 which could lessen the tax paid those in the middle tier of the property market by on average £9,000.

He continued “if there’s a case that an amendment of the current bands could help stimulate the housing market in that range, and the revenue it raises, then I will consider it.”

Mr Mackay’s decision has the potential to add more fluidity to the property market in Scotland – of course, time will tell whether this will become a reality.

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