Experts say Scottish Government’s property tax is ‘flawed’

The tax has been described as 'ill-suited' and 'poor'.
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Experts commissioned by the Scottish Government have blasted its stamp duty replacement scheme, describing the modelling as “ill-suited” and “poor.”

The review of Land and Buildings Transaction Tax (LBTT) says the SNP’s methodology is not robust enough to make proper predictions for how much revenue will be raised.

LBTT which replaced stamp duty after the power was devolved to Holyrood in April 2015 uses a graduated tax rate for properties.

Rising LBTT percentages apply with properties worth up to £145,00 not paying any LBTT while those in the highest price range of over £750,000 pay 12 per cent.

London-based Alma Economics’ study ‘A Review of Tax Revenue Forecasting Models for the Scottish Housing Market’ described the methodology used by ministers as “ill-suited for scenario analysis and fiscal impact costing”

Earlier this year, it was revealed the scheme would generate £800 million less than originally thought.

Murdo Fraser, MSP, Scottish Conservative shadow finance secretary, said the SNP has badly misjudged how much it would receive from LBTT changes.

“To have got this wrong to the tune of more than £800 million is nothing short of incompetent.

“Now the experts appointed by the Scottish Government to evaluate this are exposing further embarrassment.

“It’s no wonder the SNP got its sums so badly wrong when the proper modelling wasn’t even in place for making these forecasts.”

Paul Hilton, chief executive officer of the Edinburgh Solicitors’ Property Centre, said LBTT appeared to be discouraging sellers.

“Over the past year, we have seen the market across Scotland has been in favour of the seller, where fewer people are putting their property on the market, resulting in a faster time to sell and an increase in homes selling for over their home report valuation.

“Despite the market being in favour of the seller, anecdotal feedback from solicitor estate agents on behalf of their sellers indicates the introduction of LBTT, and the Additional Dwelling supplement in April 2016, are proving to be discouraging to sellers. It seems that sellers are reluctant to list their property for sale as they will have to pay a higher tax charge for properties over £330,000 and might incur the additional dwelling tax, which is payable if the seller buys a new home before they sell their current property.”

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