LBTT is the gift that keeps on giving – until it doesn’t

A long-term highly-taxed market such as Scottish residential property will always discourage buyers, says ​David J Alexander.

The Land and Buildings Transaction Tax (LBTT) is the gift that keeps on giving. The latest figures reached another peak, generating £758.9 million in the 12 months from September 2025 to August 2026 which was a 12.1 per cent year-on-year increase of £82m.

Of this £758.9m bounty the Additional Dwelling Supplement (ADS) raised £228.1m, which is a 25.1 per cent increase totalling £45.8m. But there are growing signs that second-home buyers, landlords, and investors (who pay the ADS) may be becoming disillusioned with the more costly Scottish market.

Equally, the tax net is also widening its reach with the number of buyers not paying LBTT in 2015 standing at 52.4 per cent when the tax was introduced but by August 2026 this number had dropped to 30.9 per cent, meaning 69.1 per cent of all buyers now pay a levy for simply buying a home.

Meanwhile almost all the residential taxes raised arose from properties sold for more than £325,001 when a 10 per cent levy is imposed. The 21,410 transactions above this threshold collected £444m, which is 83.6 per cent of the total £530.8m raised in LBTT (this is the figure for residential sales with the ADS figures removed). This means that the average tax levied per homebuyer was £20,737.

Whilst we are continuing to see a high level of revenue generated from LBTT there must come a point at which buyers will delay or even cancel their home purchases. Investors might be put off by the much more punitive tax regime in Scotland and transfer their assets to the rest of the UK or even abroad. There might be an element of market conditions in such choices but there is little doubt that a long-term highly-taxed market will always discourage buyers.

Increases in taxation always have a ceiling. They will go up in the short term as the market adjusts to the costs but there is always a levelling out in the rate of revenue collection as investors decide enough is enough. Property investors, landlords, and second homeowners all have options, can be flexible, and can transfer their investments into other markets or countries.

Among individual homeowners there are signs that people in larger homes are holding off moving because the transaction costs are prohibitive and a block at any stage in the housing market can cause a stalling in sales. If there are no larger houses to move to those in smaller homes have fewer options and this impacts the market as a whole.

The recent report by the Housing, Communities and Local Government (HCLG) committee for a review into property taxes stated that they think property taxes have a negative impact on housing activity which is, after all, an integral part of the health of the economy and that punitive taxes have a detrimental impact in the long term.

Given the enormous sums being raised through the Additional Dwelling Supplement (ADS) from landlords, property investors and second homeowners, it is only natural that they too may be losing their enthusiasm for the huge charges made in Scotland compared to the rest of the UK. The risk is that you put investors off even looking into Scotland because of legitimate concerns over the tax regime and the potential for further rises in the future. Once these investors are gone, they may be very difficult to get back.