SCOTTISH house-buyers face a race against time to save thousands of pounds in tax if they are seeking a property worth more than £254,000.
Dramatic cuts in stamp duty introduced by George Osborne yesterday will be available in Scotland from today for a window of around four months, until a new Scottish tax is introduced that will impose more punitive rates on properties at the higher end of the Scottish market. With Scottish ministers bringing in a replacement for stamp duty in April next year, Mr Osborne attempted to steal a march on Nicola Sturgeon’s government by producing his own reform of the levy which will be implemented across the UK immediately.
Until April, Scottish home-buyers will be bound by Mr Osborne’s new stamp duty system, which will charge 5 per cent tax on properties between £250,000 and £925,000.
Then, stamp duty in Scotland will be replaced by John Swinney’s land and buildings transaction tax (LBTT), which will charge 10 per cent on properties in the £250,000 to £1 million band.
Mr Osborne said his plans for graduated tax bands would replace a “badly designed system” that had distorted the housing market and was a “tax on aspiration”.
In his final Autumn Statement before May’s general election, the Chancellor said the new system would reduce stamp duty for 98 per cent of the population.
CONNECT WITH THE SCOTSMAN
• Subscribe to our daily newsletter (requires registration) and get the latest news, sport and business headlines delivered to your inbox every morning
He also said it would increase the taxes on the most expensive 2 per cent of homes, but only asked people to pay when they bought the house and had the money – unlike Labour plans for a mansion tax.
In Scotland, the Conservatives called on the Scottish Government to reconsider their “assault on aspiration” while property experts anticipated a rush of buyers in the £250,000-plus price bracket before April.
Stamp duty reform was the key announcement in an Autumn Statement that delivered a series of pre-election sweeteners including a freeze in fuel duty, the abolition of air passenger duty for under-12s this year and under-16s next, and giving people the ability to pass on their tax-free Isas to their spouses when they die.
Under the new Westminster stamp duty rules, the first £125,000 of a property will not be taxed at all, while buyers of properties valued from £125,000 to £250,000 will be charged at a 2 per cent rate. From £250,000 to £925,000, buyers will be charged at 5 per cent. From £925,000 to £1.5m, they will be charged 10 per cent and for more than £1.5m the rate will be 12 per cent.
Under Scotland’s LBTT, no tax will be charged on properties bought for up to £135,000; 2 per cent will be charged on properties between £135,000 to £250,000; 10 per cent will be charged for properties costing between £250,000 and £1m; and for properties costing more than £1m, the levy will be 12 per cent.
Many home-buyers in the country’s property hotspots such as Edinburgh and Aberdeen have to pay more than £250,000 for a family home.
Under the LBTT, someone buying a home worth £350,000 will pay £12,300. Under yesterday’s UK government reforms, a £350,000 house will cost just £7,500 in stamp duty.
For a home worth £395,000, the SNP’s system will yield £16,800 – but for the rest of the UK it will be £9,750.
It means the new tipping point for homebuyers under LBTT – where they pay more than they would have done previously – is now £254,000, compared to £325,000 under the old stamp duty system.
Last night David Marshall, spokesman for Solicitors’ Property Centres Scotland, anticipated a rush in the £250,000-plus price category over the next few weeks.
He said: “For those who are able to adjust the timing of their transaction, there will be a strong incentive for them to do so. It is certainly possible in the short term that this will push property prices higher in this price bracket, though this will be temporary as the LBTT will come into force in April.”
Scottish Conservative finance spokesman Gavin Brown said: “The fact the SNP has chosen to punish those aspiring to own a family home is now even more apparent. We have always had grave concerns at the eye-watering 10 per cent tax rate.”
Finance secretary Mr Swinney defended his LBTT, saying his tax was designed for Scottish – not London – house prices.
He also suggested that the UK government had followed in his footsteps by moving to a system based on graduated bands and away from the long-standing “slab” system, which sees buyers charged a percentage of the full purchase price as soon as the value hits thresholds.
Mr Swinney said: “I am delighted to see on the first occasion I’ve had to design a tax system for Scotland, the UK government copies it instantaneously and applies it across the UK – imitation truly is the sincerest form of flattery.”
Meanwhile, in his Autumn Statement, Mr Osborne was forced to admit that weak tax revenues mean the national deficit is not falling as fast as hoped and will be more than £90 billion this year.
But he pointed to forecasts of surging 3 per cent growth and appealed for voters to let him “finish the job” of overhauling the economy.
The Chancellor said Office for Budget Responsibility (OBR) forecasts showed Britain would be the fastest-growing advanced economy in the world this year and hundreds of thousands of jobs were being generated.
But growth is expected to slip back below 2.5 per cent in subsequent years. And he confirmed that borrowing was estimated to be £91.3bn this year – rather than the £86.4bn previously expected.
“Now Britain faces a choice,” Mr Osborne told MPs. “Do we squander the economic security we have gained, go back to the disastrous decisions on spending and borrowing and welfare that got us into this mess?
“Or do we finish the job – and go on building the secure economy that works for everyone?
“I say: We stay the course. We stay the course to prosperity.”
The Chancellor insisted the UK’s budget deficit had been halved since 2010 and was still forecast to fall in every year.
By 2018-19, he said, the government is due to record a surplus of £4bn.
David Bell: No rebalancing as consumer debt grows without remark
George Osborne made a typically robust defence of his economic record in the last Autumn Statement of this parliament.
Yet the economic judgment on the coalition’s record is likely to be harsher than the political assessment. True, the UK economy has outgrown most European economies in 2014. But its overall performance since the last election has been less rosy. UK growth has been slower than the US, Ireland, Canada, Australia and New Zealand.
In his 2010 Budget speech, the Chancellor argued: “Our policy is to raise from the ruins of an economy built on debt a new, balanced economy where we save, invest and export.” On all of these criteria, the facts suggest the objectives have either not been achieved at all, or very partially.
The trade performance has been anaemic since 2009. Increased exports have made no net contribution to growth and the main contribution has come from consumer spending. It is difficult to claim the UK economy has been rebalanced given that two thirds of the growth in GDP comes from increased high street spending. The inevitable consequence is rising household debt with the OBR’s December forecast of 173 per cent of GDP in 2018 already rising to 172 per cent. Huge angst is generated by public sector debt approaching 80 per cent of GDP, while the fact household debt is more than double this passes almost unremarked. On public sector debt, the ambitions of 2010 have not been realised. The OBR forecast was that the deficit would be down to 2.1 per cent of GDP in 2014-15. The outcome looks likely to be around 5 per cent, more than double that.
The main cause of the failure to meet borrowing targets has been the weakness of tax revenues. These reflect the massive changes in the UK labour market. There has been massive growth in low-paid jobs, while real wages have been falling. Not surprisingly, the Chancellor has had little tax dividend from the extra jobs.
The consequence is that income tax revenue is now expected to be £52.9 billion less than its March forecast for the period to 2018-19, making the reduction in the deficit even more difficult to achieve. Hence the further savage cuts in public services that are implicit, but not rarely discussed, in the last Autumn Statement of this parliament.
SCOTSMAN TABLET AND IPHONE APPS