THE replacement for stamp duty in Scotland is a “very, very bad tax” which will affect every level of the property market, including first-time buyers, a leading academic has warned.
Professor Ben Jacobsen, chair in financial markets at the University of Edinburgh Business School, said the land and buildings transaction tax (LBTT) would not just hit wealthier homeowners – but would have a much wider impact.
John Swinney, the cabinet secretary for finance, announced this month that 10 per cent would be levied on the purchase price of properties between £250,000 and £1 million – and 12 per cent above that.
Prof Jacobsen thought this was “an awfully high percentage” and said: “This is a very, very bad tax. Taxes like this make the housing market very shaky; people stay longer in lower-priced houses and it’s harder to get onto or up the property ladder.”
Less movement higher up the ladder meant fewer people moved, he explained, so not as many houses came on to the market – and prices would rise at the bottom of the market because of increased demand: “First-time buyers do not get a cheaper house – because the price has gone up.”
Prof Jacobsen, who moved from New Zealand to Edinburgh in August, felt the LBTT rates could put off innovators and wealth creators thinking of moving to Scotland. He told a seminar on wealth management organised by The Scotsman Conferences and Turcan Connell: “This does not bode well for years to come [regarding other taxes]. I think it could hold back innovation.”
Scotsman columnist Bill Jamieson also warned about the signals from the LBTT and the desire of the Scottish Government to control all capital taxes as well as income tax. He likened those who had wealth in Scotland to cats on an increasingly hot tin roof: “The cats on the hot tin roof are ready to jump off before they get burned.”
He said Scotland needed a strong macroeconomic environment and business sector, a wealth-friendly tax and regulatory environment and stable and predictable long-term planning – and said company headquarters were very important.
“For 15 years the Scottish Government and its agencies have been campaigning to attract head office functions to Scotland. Then we were told ‘It’s just a brass nameplate’. That’s not the case; we do need to attract and maintain head office functions, it’s important for our economy. Financial services companies are carefully watching the direction of travel of the Scottish Government.”
Urging a greater focus on wealth creation, Mr Jamieson said he feared the approach was instead to “give those with the broadest shoulders the biggest financial burden”.
“Who is going to be measuring us up for the broad shoulders? Will anyone who is a millimetre broader than the average pay more?” he asked.
Mr Jamieson warned that the Scottish Government ignored the views of older voters (whose voice, he claimed, had been largely absent in the referendum campaign) at their peril. “People are very protective about capital they have built up, they don’t want it hit by taxes or threatened by lower rate returns. So the wealth management community is absolutely critical.”
Haig Bathgate, chief investment officer at Turcan Connell Asset Management (TCAM), said there had been evidence of capital being moved from Scotland ahead of the referendum.
Six big investment firms had reported total outflows of around £150 million from Scotland. TCAM had experienced this too, he added – it had not been a landslide, but that there had been a number of calls ahead of September’s vote about “pre-emptively moving assets south of the Border”.
One delegate asked how to tackle the problem that “Funds run away but walk back”. Mr Bathgate replied: “When people have been provoked to move capital away, there has to be an incentive to bring funds back. I hope the authorities will use their powers to try to bring funds to Scotland, not use it as an excuse to get their paws on the loot.”
Earlier, he said that the uncertainty over the referendum had led to a drop-off in financial services jobs in Scotland and contributed to a fall in the value of sterling against the dollar,
However, he felt confidence was returning and said putting the currency issue to bed was important – and thought jobs would come back into the financial sector.