Tax reliefs make property investment more attractive

Scotland currently offers landlords a better deal than is available south of the Border, writes David J Alexander​.

Scotland is currently in a unique position to encourage investment in property. There are a couple of tax reliefs which remain in place north of the Border which still apply despite having been phased out in England in 2024. These favourable tax reliefs make Scotland a much more attractive proposition for property investors and landlords to purchase two or more properties.

This has the potential to boost the private rented sector (PRS) at a time when demand still outstrips supply, and much more volume is required if we are to meet the needs of tenants now and in the future.

For those wishing to invest in property in Scotland these reliefs – multiple dwelling relief (MDR) and no Additional Dwelling Supplement (ADS) on larger purchases – provide substantial advantages not available in England.

What these reliefs mean is that property investors and landlords here can receive MDR on most transactions that involve the purchase of two or more dwellings in a single transaction or in a series of linked transactions. This relief works by ensuring that the buyer does not pay Land and Buildings Transaction Tax (LBTT) at a higher rate than if the properties were bought separately and lower rate bands would have applied. The relief ensures that in all cases a minimum prescribed amount of tax is charged on transactions involving multiple dwellings.

MDR is available on most transactions that include multiple residential dwellings whether or not there is also non-residential property in one or more of the transactions. Both multiple dwellings relief and the ADS relate to transactions with dwellings and additional property that is not classed as a personal dwelling (ie investment properties for the private rental sector).

Where the ADS is applicable, MDR may be available. MDR may also be available on the purchase of six or more residential properties bought in a single transaction and these are not subject to the ADS as they are treated as being non-residential.

What this means is that an investor will not pay anything like the levels of LBTT or ADS on the purchase of multiple properties using these reliefs. This cuts the cost of buying portfolios of properties to be used in the private rented sector by tens or even hundreds of thousands of pounds.

The cost in LBTT and ADS of buying a £1.5 million investment property is £258,350. If a landlord or investor buys six properties at a cost of £1,500,000 as a single or linked purchase then, assuming each property was valued at £250,000, LBTT with MDR applied would fall to £12,600 resulting in a saving of £245,750 as the 8% ADS costs of £120,000 does not apply.

This combination of MDR and purchases of six or more properties removing ADS provides an opportunity for landlords and investors to buy into the PRS in Scotland. These reliefs afford investors a rare opportunity to invest into the Scottish property market without incurring punitive tax charges. These tax reliefs could, therefore, provide an ideal opportunity for the PRS to grow rapidly in Scotland to service the needs of thousands of tenants currently unable to find suitable properties.