It is a favourite mantra of politicians – and not all of them on the left either – that top earners in the UK do not pay nearly enough tax and that, pro rata, their contribution is significantly less than that from the general population.
However, as statistics from recent tax years have consistently shown, more than a quarter of what the government receives in income tax has been paid by just 1 per cent of taxpayers. And as much as these individuals enjoy living here, this suggests there is a limit to what they will be prepared to pay before heading off for foreign climes if rates of income tax were to return to anything resembling those of the pre-Thatcher years.
It would appear that Scotland’s version of stamp duty – Land and Building Transaction Tax (LBTT) – is beginning to play out in the same manner, according to the latest survey of the residential property market by my business rivals and professional friends at Rettie & Co.
Marking the fourth year of LBTT, the report reveals that after revenue failed to achieve the sums forecast in the first two years, the situation improved significantly in the following year with revenues growing by almost a quarter. In year four, however, “it has barely grown at all”.
I have no doubt that the latest slump is, in part, due to the continuing uncertainty over Brexit but it would be too easy to put it all down to that. From front-line experience I know there are people who start making plans to upgrade to a bigger house or a more suitable area, or both, with the usual enthusiasm…until they realise how much the move will cost in LBTT.
What I find most interesting about the Rettie report is the geographical breakdown of revenues from the tax. Property transactions in the City of Edinburgh council area, with just under 10 per cent of the Scottish population, contributed more than one-third of LBTT revenues. And despite the continuing relative strength of the capital’s housing market, 20 per cent of national income came from just five Edinburgh (or EH) postal districts. Adjacent to Edinburgh, the East Lothian council area comprises just 2 per cent of the population but contributed 8 per cent of LBTT revenue; this may not be unconnected to the presence of high-value properties in communities like North Berwick and Gullane.
In the west, why does South Lanarkshire contribute so much more than its more populous neighbour, North Lanarkshire? I suspect part of the reason may be expensive housing in the affluent twin communities of Bothwell and Uddingston, famous for being home to, among others, some of Scotland’s top footballers. Renfrewshire, with just over 3 per cent of the population, contributes 6 per cent of income, which could be due to areas like Newton Mearns and Clarkston forming an affluent commuter belt just south of the Glasgow boundary.
The evidence clearly suggests that those parts of Scotland punching above their weight in terms of LBTT payments have a greater proportion of expensive housing – and, by implication, middle-market housing which will also be higher-priced than average and contribute more tax. While transactions of expensive properties have undoubtedly slowed, without those that have gone through the revenue situation would be worse than it is.
While transactions above £750,000 accounted for 12 per cent of revenue in 2015 this is projected to rise to 21 per cent by 2023 while still accounting for only 1 per cent of total sales. However, just as “fiscal drag” draws in lower earning workers to paying income tax so it will lead to greater numbers of householders within the more conventional sectors of the market being subject to LBTT. In 2015 over half of all transactions were exempt but by 2023 this will be reduced to a third.
So Derek Mackay, the Scottish Finance Secretary, may find increasing buyer resistance coming not just from “the toffs”, but from owner-occupiers among his government’s core voters as well.