Property experts have warned that the Scottish property tax is discouraging highly paid executives from moving to Scotland.
Lawyers claim that the higher charges of the Land and Buildings Transaction Tax (LBTT) – which can see an extra £45,000 added to the cost of a £1 million home if the property is bought in Scotland rather than England – are stifling the traditional migration of bankers and lawyers who would have moved to Scotland from other parts of the UK or abroad.
They added that the trend has caused a knock-on effect for private schools, headhunters and technology companies who are unable to attract top-level recruits, as well as seriously depressing the values of property close to the £1m mark.
Meanwhile, estate agent Bell Ingram added that the tax is suppressing activity in the rural market as higher-end buyers opt for a new home in the North of England rather than Scotland to avoid the tax.
Richard Loudon, senior property partner at Simpson & Marwick, said: “There are people who would have applied for jobs in Scotland but because of the cost of buying a house at the £1m mark here, where tax is almost double that of south of the border, they are put off.
“Anecdotally, I have heard of how people have been offered a job here, their children have been offered places in private schools – then they have pulled out because they have realised how much it will cost them to buy a home.”
He added: “It is having a knock-on effect in other sectors, such as private schools. I am seriously concerned that we are not getting quality people applying for jobs in Scotland because of this.”
The LBTT was introduced in Scotland in April 2015 in place of the UK Stamp Duty Land Tax (SDLT), with the aim of creating a tax charge more proportionate to the actual price of the property.
It means people buying a home in Scotland pay LBTT linked to a sliding scale aligned to the cost of the property.
Under the Scottish system, a property costing £350,000 will result in LBTT of £8,350, compared with SDLT of £7,500. However, for properties over the £1m mark, LBTT would be £78,350 compared with SDLT of £43,750.
Carl Warden, of Perthshire-based estate agent Bell Ingram, said the effect “ripples down the property ladder” to first-time buyers.
He said: “LBTT is clearly not working, and now is the time to make a change and realise they got it wrong.
“When I meet people who are looking to buy, their jaws hit the floor when they start to appreciate the scale of how much tax they have to pay. Transactions attracting this level of tax are making people do one of two things: either not move at all, or negotiate hard on the asking price based on the vendor reducing their price by the level of tax due.”
In the first year since LBTT was introduced, the amount raised by the tax was £201.9m, £33.1m less than the £235m which then finance secretary John Swinney said he expected to raise in the initial 12 months.
A spokeswoman for the Scottish Government said: “The most up to date evidence from Registers of Scotland and Revenue Scotland shows that sales in the market above £325,000 are not performing any differently relative to the market under £325,000.”