Why property taxation must be nearing its tipping point

People always have the option of moving to a lower-taxed economy ​​that’s just over the Border, writes David J Alexander.

Last week there was a report by the Tax Policy Associates which showed that the increase to 48 per cent of the top rate of taxation in Scotland has resulted in a fall in revenue of £22m in one year. Some commentators are citing this as an example of the Laffer curve coming into play where money raised from ever increasing taxation suddenly reaches a tipping point and the amount of revenue collected falls.

There is a naïve assumption among policymakers that tax revenue rises linearly if rates are increased but this does not allow for people changing their habits.

The latest Land and Buildings Transaction Tax (LBTT) data reveals that there may be a similar pattern emerging in property taxation. Although the figures show another record high of £758.1m in the 12 months from July 2025 to June 2026 the rate of increase has slowed substantially in recent months.

Of the £758.1m raised £230m was from the Additional Dwelling Supplement (ADS), which is 28.9 per cent of the total and is £51.6m higher than the previous year – but the overall percentage is falling.

Both these sets of figures would indicate that homebuyers, landlords, and second homeowners may be changing their habits and finding that the enormous discrepancy in tax charges between Scotland and the rest of the UK is impacting on their behaviour.

The scale of the increase in property taxation in the 11 years since LBTT was introduced has been extraordinary. In April 2015 it raised £201.9m in its first year while ADS – which wasn’t introduced until April 2016 – brought in £76.1m. Now LBTT annually raises over half a billion pounds more while ADS is £153m higher.

The figures also show that the tax net is widening. When LBTT began the number of buyers not paying any tax was 52.4 per cent but by June 2026 this number had dropped to 29.9 per cent, meaning over 70 per cent of all buyers now pay a levy for simply buying a home.

This levelling off in tax revenues is inevitable because there must come a point at which homebuyers’ ability to pay more tax for a property purchase becomes untenable. The recent call by the Housing, Communities and Local Government (HCLG) committee for a review into property taxes because they view these as having a negative impact on housing activity is a sensible one and reflects an understanding that the housing market is integral to the health of the economy but that punitively taxing the process has a detrimental impact in the long term.

Equally, given the enormous sums being raised from landlords, property investors and second homeowners through the Additional Dwelling Supplement (ADS), there are signs that they too are losing their enthusiasm for the huge charges made in Scotland compared to the rest of the UK. What is often forgotten by legislators is that higher rate taxpayers and people wanting to buy more expensive homes always have the option of adjusting their behaviour by moving to a lower-taxed economy which, in the case of Scotland, is just over the Border. The assumption that higher taxes always produce higher revenues is untrue and we may be beginning to see the fruits of this both in personal and property taxation.