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Rates of LBTT for Scotland from 1 April 2015 changed

It has been hard to keep track of all the recent changes to Stamp Duty Land Tax (SDLT) and the new Scottish Land and Buildings Transaction Tax (LBTT) which will take effect from 1 April 2015. Laura McFadzean, one of our Directors and an experienced conveyancing solicitor, summarises the changes and what they will mean for buyers and sellers.

Stamp Duty – the old system

Under the old system of Stamp Duty, which was in force in the UK up to 3 December 2014, the rate for a particular purchase price applied to the whole of the purchase price. The rates were as follows:

Up to £125,000: 0%
£125,001 to £250,000: 1%
£250,001 to £500,000: 3%
£500,001 to £1,000,000: 4%
£1,000,001 to £2,000,000: 5%
Over £2,000,000: 7%

Stamp Duty – the current rates

On 3 December 2014 the Chancellor announced a new system of Stamp Duty whereby the rate applies only to the part of the purchase price in that band – a so-called progressive tax. The rates are as follows:

Up to £125,000: 0%
£125,001 to £250,000: 2%
£250,001 to £925,000: 5%
£925,001 to £1,500,000: 10%
Over £1,500,000: 12%

Therefore, if the purchase price is £350,000, the SDLT is calculated as follows:

First £125,000: £0
£125,000 to £250,000 (= £125,000) @ 2% = £2,500
£250,000 to £350,000 (= £100,000) @ 5% = £5,000
Total = £7,500

LBTT in Scotland from 1 April 2015

The current rates of SDLT will only apply in Scotland until 1 April 2015, when the new system of Land and Buildings Transaction Tax (LBTT) will apply. This is also a progressive tax whereby the rate applies only to the part of the purchase price in that band. The rates of LBTT were originally announced on 9 October 2014 when the old system of Stamp Duty was still in place. At that time the LBTT rates would result in less tax for those buying at £325,000 or less, but more tax for those buying at over £325,000, compared to the old Stamp Duty rates.

The rates announced in October 2014 were as follows:

Up to £135,000: 0%
£135,001 to £250,000: 2%
£250,001 to £1,000,000: 10%
Over £1,000,000: 12%

However, the Chancellor’s announcement in December 2014 of the new Stamp Duty system (see above) meant that the rate in Scotland between £250,000 and £925,000 would be double the rate in the rest of the UK from 1 April 2015 (10% compared to 5%), which is obviously a significant difference.

As a result of this, Scotland’s Finance Minister John Swinney came under pressure to review the rates of LBTT in Scotland, and did so in January 2015. Many were hoping that the 10% rate would simply be reduced to 5%, but unfortunately that was not the case.

The rates announced on 21 January 2015, which will apply from 1 April 2015, are as follows:

Up to £145,000: 0%
£145,001 to £250,000: 2%
£250,001 to £325,000: 5%
£325,001 to £750,000: 10%
Over £750,000: 12%

As you will see, Mr Swinney did introduce a 5% band which applies to the part of the purchase price above £250,000, but only up to £325,000, as opposed to £925,000 in the rest of the UK. The 10% band therefore continues to apply to a significant part of the purchase price for those buying in the high middle and upper markets in the main cities.

The highest rate of 12% now applies to the part of the purchase price above £750,000, whereas it would have been £1,000,000 under the original rates.

What does this mean for buyers and sellers?

The new rates of LBTT mean that anyone buying a property for less than £948,000 will pay less tax than they would have paid under the original rates of LBTT, and anyone buying a property for more than that amount will pay more tax. Obviously this is good news for the vast majority of buyers and sellers.

However, the comparison between the new LBTT rates and the current Stamp Duty rates is mixed:

As pointed out by the ESPC, this means that around 85% of buyers in Edinburgh will be unaffected or better off under LBTT.  However, the remaining 15% of buyers will pay more tax, and in some cases significantly more tax, than the rest of the UK will be paying in SDLT from 1 April 2015.

Sellers may benefit from the reduced amount of LBTT payable by buyers who are paying £333,000 or less for a property from 1 April 2015, as buyers will have more cash available to apply towards the purchase price. However, the difference is £400 at most.

On the other hand, sellers who own properties worth more than £333,000 may suffer as buyers will have to pay more in tax and will therefore have less cash available to apply towards the purchase price. This becomes more relevant as the purchase price increases.

We may find that this will have an effect on the middle and upper markets in the main cities as buyers struggle to come up with the additional tax and reduce their offers as a result. It is also likely that at least some people will be so put off by the amount of tax payable that they will choose not to move at all, or not so often, which will result in reduced stock coming to the market.

Examples for comparison

Here are some examples of how the current SDLT rates compare with the revised LBTT rates at various purchase prices:

£125,000: SDLT £0, LBTT £0
£130,000: SDLT £100, LBTT £0
£145,000: SDLT £400, LBTT £0
£150,000: SDLT £500, LBTT £100
£175,000: SDLT £1,000, LBTT £600
£200,000: SDLT £1,500, LBTT £1,100
£250,000: SDLT £2,500, LBTT £2,100
£300,000: SDLT £5,000, LBTT £4,600
£325,000: SDLT £6,250, LBTT £5,850
£333,000: SDLT £6,650, LBTT £6,650
£350,000: SDLT £7,500, LBTT £8,350
£400,000: SDLT £10,000, LBTT £13,350
£450,000: SDLT £12,500, LBTT £18,350
£500,000: SDLT £15,000, LBTT £23,350
£550,000: SDLT £17,500, LBTT £28,350
£600,000: SDLT £20,000, LBTT £33,350
£700,000: SDLT £25,000, LBTT £43,350
£750,000: SDLT £27,500, LBTT £48,350
£800,000: SDLT £30,000, LBTT £54,350
£900,000: SDLT £35,000, LBTT £66,350
£1,000,000: SDLT £43,750, LBTT £78,350
£1,250,000: SDLT £68,750, LBTT £108,350
£1,500,000: SDLT £93,750, LBTT £138,750
£1,750,000: SDLT £123,750, LBTT £168,350
£2,000,000: SDLT £153,750, LBTT £198,350
£2,500,000: SDLT £213,750, LBTT £258,350
£3,000,000: SDLT £273,750, LBTT £318,350
£5,000,000: SDLT £513,750, LBTT £558,350

You can calculate use HMRC’s SDLT calculator to calculate the amount of SDLT payable for any particular purchase price using the current rates, and the Scottish Government’s LBTT calculator which calculates the amount of LBTT which will be payable in Scotland from 1 April 2015.

If you have any queries on SDLT or LBTT, or any other property or conveyancing matter, please do not hesitate to contact Laura McFadzean on 0131 312 7276, or by e-mail to lmm@elpamsolicitors.co.uk.

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