Lands and Buildings Transaction Tax (LBTT) came into force in Scotland on 1st April 2015. There is currently a Bill in the Scottish Parliament that proposes to bring major changes in force on LBTT’s first anniversary. The changes are to mirror changes in England and Wales.
The new rules, should they come into force, will affect those who obtain a second home – whether as a buy-to-let or because their home has not sold prior to their purchase occurring. The logic behind this proposed change is that it should ensure that as many properties as possible are available for first-time buyers to climb the property ladder.
The new tax applies to a purchase of a second home over the price of £40,000. In addition to the current LBTT that is payable, 3% of the entire purchase price will be payable.
For example, if purchasing a second home at £75,000, no “normal” LBTT will be payable, but £2,250 will be due under the new additional tax.
Similarly, if a second property was purchased for £150,000, there would be £100 of “normal” LBTT payable, and £4,500 under the additional tax.
This additional tax will apply if, at the end of the day when the property is purchased, two properties are owned. This means it will not impact those who buy and sell on the same day. The additional tax will also not apply if the new property is bought to replace a main residence.
The Bill does provide for the additional tax to be refunded if the previous property is sold within 18 months of the purchase of the second property.
It is thought that, if this new additional tax is enacted, it will have a large impact on those who inherit a property or those who purchase a flat for their student children.
If the Bill is enacted, it will also have a great impact on spouses, civil partners and cohabitants. The Bill provides that a property owned by one spouse will be treated as being owned by the other spouse should the second spouse buy a property. This will also apply if the first property is owned by the child of the buyer/spouse/cohabitant/civil partner.
For example, A and B are a married couple. A owns a house in their sole name. B decides to buy a property in their sole name for £50,000. As A and B are married, they are treated as if they both owned the first property. The additional tax will be payable on B’s purchase (£1,500).
Further information on the proposed changes can also be found on the Government website https://www.gov.uk/government/consultations/consultation-on-higher-rates-of-stamp-duty-land-tax-sdlt-on-purchases-of-additional-residential-properties/higher-rates-of-stamp-duty-land-tax-sdlt-on-purchases-of-additional-residential-properties or