During this difficult time, with many of us affected by the impact of the Covid-19 restrictions, house purchasers will be reassured that the Scottish Government is providing some additional assistance.
The Government is increasing the starting threshold for Land and Building Transaction Tax (LBTT).
It takes effect from 15 July 2020.
This is provisional and the necessary legislation is still to be passed.
LBTT can be payable when you buy a property.
It is sometimes referred to as Stamp Duty although, in Scotland, LBTT replaced Stamp Duty Land Tax in 2015.
It is a banded tax which means that more than one rate can apply.
This does not make the calculation of the tax straightforward.
Because of that, there are some examples below to help you understand how it works in practice.
The change is that the threshold before LBTT is payable has been increased.
It goes up from £145,000 to £250,000.
This threshold affects any purchases where the effective date is on or after 15 July 2020.
The Government intends that it will stay in place until 31 March 2021.
The effective date is almost always the date of the purchase – i.e. the day payment is made in exchange for the keys and a signed deed.
If the missives – the contract of purchase / sale – are already in place but your purchase date is on or after 15 July, the new threshold will still apply to your purchase.
There has not been any change to the Additional Dwelling Supplement (ADS) for those buying an additional house.
If the purchase price is £40,000 or more, tax at the rate of 4% is payable on the full price.
There are a few circumstances in which either ADS is not payable or you can reclaim any ADS paid.
The most common one is where you are replacing your main home.
It’s worth checking and giving your solicitor full details .
You can have a look on Inland Revenue website.
| LBTT before 15 July 2020 | LBTT from 15 July 2020 | |
| Up to £145,000 | Nil | Nil |
| Up to £175,000 (if 1st time buyer relief) | Nil | Nil |
| Above £145,000 (or £175,000 if 1st time buyer) to £250,000 | 2% on that part of the price | Nil |
| Above £250,000 to £325,000 | 5% on that part of the price | 5% on that part of the price |
| Above £325,000 to £750,000 | 10% on that part of the price | 10% on that part of the price |
| Above £750,000 | 12% on that part of the price | 12% on that part of the price |
Here are a few examples to give you more of an idea as to how these changes will play out.
Example 1
Annette is buying her first home at a price of £95,000. She does not own any other property.
There is no change – there is no tax payable.
Example 2
Brian is selling his flat, which is his main residence, and buying a house on the same day at a price of £150,000.
He does not own any other property.
Brian will make a slight saving:
- Before the change he would have paid £100. Between £0 – £145,000 no tax was payable and tax at 2% was chargeable on that part between £145,000 and £150,000 (2% of £5,000 = £100).
- After the change, because the starting threshold is £250,000, there is no tax due.
Example 3
Charlotte is buying a flat to rent. She owns the house she lives in and has no intention of moving. The price of the flat is £110,000.
There is no change.
The purchase price is below the starting threshold so there is no LBTT.
But, as Charlotte already owns a residential property, she will pay £4,400 ADS, being 4% of the purchase price.
Example 4
David and Elizabeth are buying a new home at a price of £300,000. Their current home is on the market. Elizabeth has a cottage which her grandfather left to her and which is leased.
David and Elizabeth will make a saving.
Before the changes, they would have paid £4,600 LBTT and £12,000 ADS. The payment is now £2,500 LBTT and £12,000 ADS.
- Before — between £0 – £145,000 no tax was payable, tax at 2% was chargeable on that part between £145,000 and £250,000 (2% of 105,000 = £2,100) and tax at 5% was chargeable on that part between £250,000 and £300,000 (5% of £50,000 = £2,500).
- After – between £0 – £250,000 no tax is payable and tax at 5% is charged on that part between £250,000 and £300,000 (5% of £50,000 = £2,500).
- There is no change to ADS. A payment of the full price of £300,000 is payable, however, if David and Elizabeth sell their current home (being their main residence) within 18 months. As they have replaced their main residence they will be able to reclaim the ADS payment of £12,000 after the sale goes through. The cottage is not taken into consideration as they are replacing their main home. If they had not sold a main residence, they would not be able to reclaim the ADS.
How we can help
We hope this article has helped you to understand how, in general terms, the Scottish Government’s Land and Building Transaction Tax help is good news for house purchasers.
Feel free to get in touch with us to if you have any questions. We’d be glad to help you. All initial enquiries are free of charge and without obligation.
The same applies if you have any questions about our property purchase and sales services.
You can phone us on 01343 544077 or you can send us a Free Online Enquiry via this website.
When can someone challenge a Will in Scotland?