FIRST-TIME buyers are in line to save thousands of pounds on the cost of a new home, after the SNP government unveiled plans for Scotland’s first tax-raising powers in more than 300 years.
But middle class Scots in property hotspots like Edinburgh and Aberdeen face big increases under the new land and buildings transaction tax (LBTT), which replaces stamp duty next April.
The move prompted claims that finance secretary John Swinney was effectively creating a “mansion” tax as he set out his £30 billion annual Budget at Holyrood yesterday.
He told MSPs that 90 per cent of Scots will either pay less of be unaffected under the new Scottish regime.
Scots will pay no tax on homes up to the cost of £135,000 – compared with the lower £125,000 cut-off under stamp duty.
Extra cash for the NHS and affordable housing was also unveiled by Mr Swinney yesterday, as well as additional funding to tackle the impact of the controversial bedroom tax.
Apprenticeship places are to be expanded with a new target of 30,000 places by the end of the decade, with funding also set out for more childcare.
At the heart of the spending plans were the new tax-raising proposals which also includes a new landfill tax.
Mr Swinney said stamp duty – which remains in place for the rest of the UK – caused “unfair tax hikes” and led to the market being “distorted”.
“Our proposed residential transaction rates will be more proportionate to the house price, and means that the tax is fairer as it is based more closely on the buyer’s ability to pay,” he said.
The new regime means a first-time buyer purchasing a house worth £130,000 pays nothing – under the old regime thy would have to pay £1,300.
But a family buying a £450,000 home would face an £8,800 increase on what they currently pay under stamp duty, having to shell out a total of £22,300.
Once a property passes £325,000 in value, house-buyers will start paying more under the new regime than under its predecessor.
And a 12 per cent tax rate for houses costing more than £1 million will come into force.
Property experts last night predicted a burst of activity in more expensive homes as sales are pushed through before March to avoid the new tax, but they could be facing a longer-term slump.
Matthew Gray, Scottish representative of the National Association of Estate Agents, said: “The announcement should come as a welcome boost to first-time buyers and the lower-end of the market, and should help many to get their foot on the property ladder, with no tax on properties up to £135,000.
“Generally we would expect the first-time buyer and lower end of the market to warm up as these reforms come into play next year.”
But Paul Gallagher, tax partner and head of EY Scotland’s government and public sector practice service, said: “The Scottish Government has effectively, and unexpectedly, signalled the creation of a Scottish ‘mansion tax’ with homes at the higher end of the market subject to increased taxation. The bandings also have the potential to tighten the screw on the so called ‘squeezed middle’.”
The new tax is deemed to have more gradual changes than stamp duty. In the £135,001-£250,000 band, Scots will only pay 2 per cent on the portion of the purchase price which falls into this band.
And a £140,000 property would result in tax charged on the £5,000 above the £135,000 cut. With stamp duty, tax is charged on the full £140,000, albeit at 1 per cent.
Both LBTT and the landfill tax are new powers which were handed to Holyrood after the Calman Commission report on the devolution settlement ten years on.
Mr Swinney told MSPs that the standard rate of Scottish landfill tax – which is paid when waste is sent to environmentally-unfriendly landfill dumps – would be at £82.60 per tonne with a lower rate of £2.60.
Scotland will also get borrowing powers for the first time next year and Mr Swinney confirmed he is to use his full allocation of £309m next year to fund a range of programmes.
The Budget also sets out £4.5bn of infrastructure investment in 2015-16 while there was funding of more than £390m to deliver 6,000 affordable homes and £125m of additional financial support for the housing sector.
The Budget includes provide £81m to mitigate against Westminster’s welfare reform including the “Bedroom Tax” while the health budget also tops £12bn for the first time with a funding increase of £288m.
The recent referendum campaign made the “aspirations” of the people of Scotland clear, Mr Swinney said. “The people of Scotland want to live in a more prosperous and a much fairer country than it is today,” he added.
“This Budget is focused on meeting those ambitions, as far as we can within our current powers.”
But Labour say the Budget shows Scotland has “powerful devolved parliament in Holyrood” after Scots voted decisively to remain within the UK in last month’s historic vote.
Labour finance spokesman Iain Gray added: “The reality is that health spending in Scotland has not kept pace with spending in England and we know Scottish Government plans are being worked on for £450m in cuts.
“The Scottish Government has yet again failed to deliver a fully progressive Budget, failed to tackle the underfunding of local government.”
The Conservatives said the Budget will hit people seeking to buy family homes.
“This is an assault on aspiration,” said Tory finance spokesman Gavin Brown. “At a time John Swinney could have been easing the burden on hard working families, he did the exact opposite. He launched a raid on families who want nothing more than to buy a decent home for themselves and their children.”
Liberal Democrat leader Willie Rennie welcomed the “progressive nature” of the taxes unveiled by Mr Swinney. He said: “That is something that we can agree with.”
Mr Swinney said he would work on ensuring that there is no “backsliding” on the vow made by the three pro-Union parties in the days before the referendum on Scottish independence, promising more powers for Holyrood in the event of a No vote.
The Greens said that the new taxes should provide fresh impetus to reform the “regressive, unfair” council tax which is based on decades-old property values.
Greens co-leader Patrick Harvie said: “It is no longer credible for the Scottish Government to dodge the debate about how we empower local government and fairly fund its services. We have the power to change this now so I want to see all parties coming together to work on a solution.”
How it works
• A first-time buyer, purchasing a house worth £130,000 would now pay nothing under the new tax. Under stamp duty they would have paid £1,300.
• A couple buying a flat at £140,000 would now pay tax of £100 – saving £1,300 against stamp duty.
• The tax charged on the average house price in Scotland of £162,000 would be £540 under LBTT – down from £1,620 under stamp duty.
• A couple buying a £238,000 home would pay £2,060. Under stamp duty they would have paid £2,380 giving them a saving of £320.
• A family buying a £260,000 home would save £4,500 in tax. They would now pay £3,300 compared with a stamp duty charge of £7,800.
• Meanwhile, a family buying a home for £450,000 would pay £22,300 under the new tax. This would be an increase of £8,000 on the £13,500 they currently pay.
• A wealthy family buying a £1.2 million mansion would pay £89,300 under the new Scottish regime – compared with £60,000 under stamp duty.
Tom Peterkin: Ghost of Adam Smith guides Swinney’s hand
If John Swinney was to be believed then the teachings of Adam Smith, the father of modern economics, were much in evidence yesterday when he unveiled his first post-referendum budget.
The First Minister made numerous references to that particular giant of economic thought on a day that made its own bit of history.
For the first time in 308 years, the Scottish Parliament returned to the issue of property transaction taxes. Not since 1706 – one year before the Treaty of Union – had the Scottish Parliament dealt with such weighty matters when it set the rate of “cess land tax” on property.
Having endured defeat by the No campaign, perhaps it was comforting for Mr Swinney and his SNP colleagues to dwell on those halcyon days when Scotland was still an independent nation.
If so, Swinney was also content to namecheck Smith, a hero of the post-Union Scottish Enlightenment.
Announcing his Land and Buildings Transaction Tax Swinney said he was setting out a “Scottish approach” based on the four maxims set out by Smith in 1776. For those to whom the Wealth of Nations is a closed book, Swinney reminded us that the maxims were: certainty, convenience, efficient collection and proportionate to the ability to pay.
It was the latter that caused the most comment. Would yesterday be remembered as a day when first-time buyers were helped or a day that thwarted the aspirations of those seeking to buy properties worth more than £325,000? The former view was presumably held by the outgoing First Minister Alex Salmond, who was sitting to Swinney’s right. Unlike Adam Smith’s invisible hand, Salmond’s left mitt was in evidence when he patted his Finance Secretary on the back once he had finished speaking.
Salmond himself was unable contain himself during the debate, murmuring and interrupting throughout a contribution from the Tory Gavin Brown.
“Mr Salmond – stop heckling,” scolded the Presiding Officer Tricia Marwick.
Marwick’s indignation was nothing to that felt by Labour’s Jenny Marra who Swinney accused of producing “pretty dodgy” statistics on college places. So affronted was Marra that she strode across the chamber to present her figures to the Education Secretary Michael Russell. One wonders if such scenes were commonplace in 1706.