Punitive property taxes will price buyers out of market - David Alexander

18th Jan 2024
David J Alexander
Punitive property taxes will price buyers out of market - David Alexander - D. J. Alexander

In his latest column for The Scotsman, David Alexander highlights how property taxes affect buyers in the Scottish property market.

The property market in Scotland since the pandemic has been little short of miraculous. Most people predicted that prices would be stable at best but most likely fall in the ensuing years, but the outcome has been rocketing house prices and one of the most buoyant housing markets in years.

From March 2020 to September 2023 (the latest date for which there are statistics), average house prices across Scotland rose by £41,492 to reach £192,117 - an increase of 27.5 per cent in three-and-a-half years which, historically, is an extraordinary rate of growth.

For homeowners this is welcome news, but with these rises come the penalty of higher taxes charged on property purchases. Scotland has the highest taxes in the UK for buying a home with first-time buyers and anyone purchasing a home worth more than £325,001 particularly penalised for wanting to own a property north of the border.

The result is that revenues from Land and Buildings Transaction Tax (LBTT) totalled £619.6m in the 12 months to December 2023. While this is slightly lower than 2022 when £623.1m was raised it is £224m higher than the pre-pandemic year of 2019.

Almost all the taxes raised arose from properties sold for more than £325,001. The 16,430 transactions above this threshold raised £350.5m which is 82.9 per cent of the total £422.7m raised in LBTT (this is the figure for residential sales with Additional Dwelling Supplement (ADS) figures removed). This means that the average tax levied per transaction was £21,332.

The Scottish Government line is that higher taxes in Scotland are only paid by those with the broadest shoulders, but there can be few who believe that someone who can afford to buy a home for £325,001 is rich.

Were these buyers to purchase a home in England, they would not start to pay the 10 per cent tax until the value of their property was greater than £925,000. In Scotland, 12 per cent is charged on properties selling for more than £750,000, whereas south of the border this level does not kick in until prices reach £1.5m. The news this week that hundreds of staff working for the Scottish Government pay English taxes because they choose to live south of the border but work in Scotland could be a sign of things to come.

But it is not just homeowners who are being penalised. Of the £619.6m taxes raised, £196.9m is from the ADS which is charged on second homes and properties purchased by landlords and property investors to rent.  

Given the punitively high taxation this group of buyers pays, it is testament to their resilience and belief in the Scottish market that they are buying properties in ever larger numbers. They are contributing substantial levels of tax to the Scottish purse and should be encouraged to invest more in the future.

Scotland risks putting off homebuyers, investors, landlords, and second homeowners with a much more punitive tax take. We must have a tax system which is more fairly based and encourages homeownership and investment in the private rented sector, and we should always be aware that those with more money always have the option of moving elsewhere.

*as seen in The Scotsman