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How will changes to Stamp Duty affect your Property investment?
If you have an interest in the property market you will be aware that from early next year the Scottish Parliament’s first new tax will come into play. From April 1st, 2015, for the first time, Scotland will have a different rate of taxation from the rest of the UK. While England, Northern Ireland and Wales will retain Stamp Duty Land Tax, Scotland will move to Land and Building Transaction Tax. It is an exciting move for the Scottish Parliament and is designed to make taxation fairer.
The current SDLT is a ‘slab’ tax and has long been criticised as penalising those who purchase at the lower end of each taxation bracket unnecessarily heavily. The LBTT will seek to redress this, consequently the most expensive properties will see the biggest increase in tax following the change.
Notably, Aberdeen fisherman, Peter Tait, has appropriately timed the purchase of his new home in the affluent Rubislaw area of Aberdeen.This month Mr Tait paid just over three million pounds for a B-Listed, six bedroom, Edwardian granite mansion close to the city centre. It is believed to be the highest price paid for a house in Scotland this year.
Faisal Choudhry, Associate Director Residential Research of Savills, said the price was the highest for a house in Scotland this year, but the price was unlikely to be matched next year because of the planned rise in stamp duty.
There is strong reasoning behind Mr Choudhry’s comments. On comparison there is a substantial difference in the stamp duty Mr Tait will pay on completion of his purchase now; around £215, 000 under SDLT compared to £325, 000 under the applicable residential LBTT rates if he had made the same purchase in April 2015.
While Mr Tait’s purchase is at the top end of the market the change in taxation should be a understood by all buyers. As we start the new year it is possible that any new deal may fall into the LBTT tax rate if not swiftly completed. New rates will apply on all deals for which the relevant trigger for payment, usually completion, falls on or after 1st April 2015. This will include conditional purchase contracts which are subject to preconditions, pre-lets and the obtaining of planning permission.
Buyers with contracts which were entered into on, or any time before, 1st May 2012 will still be subject to SDLT regardless of their completion date. However, in the event that these contracts have been varied or assigned since, or the transaction has been triggered by an option exercised after 1st May 2012 SDLT will now apply so it is important to understand these changes and which rate will apply to any purchase you make.
LBTT is a progressive tax with which the government have aimed to redress a balance in taxation. The higher tax rate is paid only on the amount of the price which exceeds the threshold. Rates are laid out for commercial property as 3% between £150, 001 and £350, 000, and 4.5% over the £350, 001 threshold. For more higher value properties this could mean significantly higher taxation than current rates and need to be understood.
To find out more about how to invest in property and understanding the implications of changes to the tax rate get in touch with our team at Cairn. With our extensive knowledge of the current market and the upcoming changes we will be able to answer your questions and give you relevant advice.