Towards the end of last year John Swinney announced as part of the Scottish budget that second homes would face an additional 3% levy on top of the Land and Buildings Transaction Tax, commencing from April 2016. Despite the introduction of the new tax being just months away there remains much confusion amongst landlords as well as buyers and vendors generally.
The intention of the levy is to charge a higher rate on each band of LBTT if at the end of the day of the transaction an individual owns two or more residential properties. However, the higher rate will not be charged if the purchaser is replacing their main residences. The Scottish Government are keen to ensure that there are sufficient affordable opportunities for first-time buyers to enter the property market but the surcharge is a blow to landlords who have also recently suffered the loss of the buy-to-let tax relief.
George Lorimer, partner at CKD Galbraith, said:
The looming new levy will undoubtedly lead to a rush of buy-to-let purchasers looking to beat the April deadline, then to an anticipated drop in sale prices post April with sellers likely to be the ones bearing the lion's share of the additional costs of the levy.
However, given the complete lack of real detail currently available about the new tax, those who do rush to buy or sell property before April are doing so without knowing exactly what the new rules will be. There are many anomalies requiring clarity but the silence from the Scottish Government has been deafening and there is little time left to debate the details of the new tax.
Specific questions need to be answered on issues such as property owned by married couples and civil partners, second homes outside of the UK and also the logistics of joint purchases, just to name a few. Whilst as a firm we are well placed to advise our clients and those thinking of selling or buying before April, more information is urgently required to allow for informed decisions.
The surcharge is also expected to impact tenants as rents increases to cover costs or less well-off landlords decide to sell rental property.
Bob Cherry, partner at CKD Galbraith, added:
This new levy will have implications for current landlords looking to sell as well as act as yet another deterrent to would be landlords thinking about the market as an investment opportunity.
This measure, like the LBTT rises introduced earlier this year, is also a wealth tax on owners as buyers of buy to lets will seek to pass on the extra purchase costs by reducing the price they are prepared to pay.
Landlords' options have narrowed, however those with a property portfolio might now consider swapping to a limited company structure and paying corporation tax instead. Speaking to an experienced adviser is essential, there is much uncertainty and the new rules are complex.