A few words on the changes to taxation on property purchases

As you’ll probably be aware, a change to the way that property purchases are taxed has just been implemented (as of the 4th of December) which aims to address the ‘jump’ in taxation at the various price band thresholds. You can see the problem that the Government is attempting to address on their graph at this link which shows the volume (by price band) of residential sales in Scotland in 2013. You’ll note the large ‘spike’ in the number of transactions just below the £250,000 threshold and a corresponding ‘dip’ just after the threshold.
There is also a similar effect around the £125,000 threshold.

So, what are the changes, and how will they affect property purchases in Oban & Argyll?

The new system utilises different thresholds to those used previously, however more significantly, rates only apply to the part of the property price that falls within each band when it is bought, as opposed to the previous system whereby a fixed rate was paid for the entire transaction amount.

Specifically:
– No stamp duty will be payable on properties below £125,000, or on the first £125,000 of properties priced above this level
– 2% will be paid on the portion from £125,000 to £250,000
– 5% is paid on the portion £250,000 to £925,000
– 10% is paid on the portion £925,000 to £1,500,000
– 12% is paid on anything above £1,500,000
However, it’s worth noting that as of 1st April 2015, the Scottish Government are proposing to change the system again for purchases in Scotland only, with the introduction of the Land and Buildings Transaction Tax (Scotland), or LBTT for short. This change is similar to that recently introduced whereby varying rates of tax will be paid according to the amount of the purchase price that falls into each band, however the thresholds – and the rates applied to those bands – are quite different.

The figures that are proposed to apply in Scotland from the 1st of April 2015 are as follows:

– No stamp duty will be payable on properties below £135,000, or on the first £135,000 of properties above this level
– 2% will be paid on the portion from £135,000 to £250,000
– 10% is paid on the portion £250,000 to £1,000,000
– 12% is paid on anything above £1,000,000

Under Scotland’s LBTT, people buying houses priced below £324,280 will pay less than under the stamp duty system as it existed before 4 December. Those spending more than that will be worse off.

After 1st April those purchasing a £280,000 property in Scotland will be £1,300 worse off than someone purchasing an identically priced property in England. Someone purchasing a £360,000 property in Scotland will be over £5,000 worse off than their English counterpart, and the disparity widens as prices increase, with the difference in taxation being greater than £10,000 at the £460,000 property level.

We’ve put together a graph showing the past, present and (proposed) future which shows that effect at the various levels of house prices. It can be seen that those higher up will be worst hit when the change is introduced, and whilst some claim that this will be solely an inhibitor to purchases at the higher end of the market, some have further speculated that this will cause a ‘log-jam’, and the knock-on effect of a stagnating market at the upper end will cause problems at the lower end of the market potentially affecting first-time buyers.

As such, there is widespread call for the situation to be reviewed and to bring the rates in line with the rest of the UK. Whether this is will happen or not, it’s too early to tell. Watch this space…