New LBTT Higher Tax Rate Applies From 1st April 2016
Investors in Scottish property are preparing to face tax rate increases for purchases of second homes and buy-to-lets. From April 1 this year, a higher rate of Land and Buildings Transaction Tax (LBTT) will be applied for purchases of additional properties – a move which mirrors the stamp duty hike which the UK Conservative Government announced last year.
Understandably, some Scottish investors are wary of the changes and want to know what the implications are for Scotland’s thriving buy-to-let market. Having observed the Conservatives’ stamp duty increase cause confusion in the rest of the UK’s buy-to-let market, investors are keen to get to grips with exactly how the decision to increase LBTT might affect them – before the raise is introduced next month.
What Does the Higher Tax Rate Mean for Investments in Scotland?
The higher tax rate will mean that a surcharge of three percentage points is added for purchases of a second home or buy-to-let property in Scotland which is worth more than £40,000.
SNP finance secretary John Swinney announced the changes in December last year. He said it was necessary to follow the Conservatives’ lead, in order to avoid market distortion – due to the likelihood of Scotland becoming a magnet for investors looking for ways to avoid the extra stamp duty charge.
Don’t Confuse ‘Stamp Duty Land Tax’ with ‘Land and Buildings Transaction Tax’
In his Autumn Statement last year, George Osborne announced that anyone who bought an additional property – including buy-to-lets and second homes – would be required to pay an extra three percentage points on stamp duty, coming into effect on April 1, 2016.
When the stamp duty hike was announced, some investors assumed that it would affect them if they bought a buy-to-let property or second home in Scotland. However, Stamp Duty Land Tax was abolished in Scotland, and replaced with Land and Buildings Transaction Tax. LBTT is applied to residential and commercial buildings transactions – including commercial purchases and commercial leases – where a chargeable interest is acquired.
LBTT will introduce a 3% supplement on the tax paid on the purchase of additional residential properties. The only way to avoid this higher tax rate will be to buy a property for less than £40,000 – otherwise it will be applied, just like the rest of the UK.
Have a look at the table below for the standard and higher rates in Scotland and the rest of the UK.
|Stamp Duty Land Tax||Land & Buildings Transaction Tax||Standard Rate||Higher Rate|
|£0 to £125,000||£0 to £145,000*||0%||3%|
|£125,000 to £250,000||£145,000 to £250,000||2%||5%|
|£250,000 to £925,000||£250,000 to £325,000||5%||8%|
|£925,000 to £1.5million||£325,000 to £750,000||10%||13%|
|£1.5million +||£750,000 +||12%||15%|
*Higher rates not applicable against property purchases of £40,000 or less.
Know Which Tax Rate You Will be Charged Before Investing
Obviously, anyone considering investing in Scottish property will want to know which rate of tax they will be charged before they make a purchase.
The rules for higher rates in Scotland are expected to be the same as the rest of the UK. According to the HM Treasury, this means anyone who owns two properties would pay the higher rate of LBTT. Investors who decide to rent out their own home and buy a second property to live in would pay the higher LBTT rate on their new purchase.