Scotland needs to level the taxation playing field

27th Mar 2024
David J Alexander

The latest Scotsman article written by David Alexander is CEO of DJ Alexander Scotland Ltd

What a resilient lot the Scots are. They pay the highest income tax in the UK, pay substantially more in property taxes to buy their homes than their English counterparts yet, despite this, remain committed to working and living in Scotland.

The latest figures show that property taxes in Scotland, raised through the Land and Buildings Transaction Tax (LBTT) totalled £616.6m in the 12 months to February 2024.

While this is slightly lower than the same period in 2022/23 when £623.0m was raised it is £212.8m (52.7 percent) higher than the pre-pandemic figure of £403.8m in 2019/20.

Almost all the taxes raised arose from properties sold for more than £325,001. The 16,350 transactions above this threshold raised £349.2m which is 82.7 percent of the total £422m raised in LBTT (this is the figure for residential sales with the ADS figures removed). This means that the average tax levied per transaction was £21,357.

If these buyers were to purchase their home in England, then they would not start to pay property tax of 10 percent until the value of their property was greater than £925,000. By contrast, in Scotland, a home costing £325,001 is the starting point for the 10 percent levy.

Furthermore, 12 percent 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. It is clear, therefore, that Scottish homebuyers are being charged considerably more in tax for the privilege of owning a home north of the Border.

Interestingly, of the £616.6m taxes raised £194.6m is from the additional dwelling supplement (ADS) which is charged on second homes and properties purchased by landlords and property investors to rent. This is 31.6 percent of the total raised and is £40.4m higher than the same period in 2022/23.

It is unclear what the breakdown of sales between second homeowners and property investors is but the number of second homeowners in Scotland has fallen 40.7 percent since its peak of 40,599 in 2012 dropping to 24,061 in 2023.

This substantial increase in purchases by investors, landlords and second homeowners indicate a considerable confidence in the Scottish market. Given the punitively high taxation paid by this group of buyers it is testament to their resilience and belief in the Scottish market that they are buying properties in ever larger numbers because they want to invest in the private rented sector, or they wish to have a second home here. Either way they are contributing substantial levels of tax to the Scottish purse and should be encouraged to invest more in the future.