Political gameplaying is preventing LBTT reform - David Alexander

Christmas is coming and even our ailing high streets have suddenly become much brighter. But this author is feeling decidedly un-festive.

Many higher and top-end taxpayers are being deterred from moving to a bigger home, says Alexander. Picture: Contributed

Why? A month after attending a Scottish Government-inspired, mini-roundtable conference on the controversial Land and Building Transaction Tax (LBTT), I still feel let down by the outcome. Don’t get me wrong. The invitation to attend was much appreciated on my part, business was conducted in a pleasant atmosphere and the event was admirably chaired by finance and digital economy minister Kate Forbes.

However, regular readers of this column will not be surprised that I used the occasion to make the case for rate changes to LBTT, principally because it had stymied the top end of the residential property market and this, in turn, had led to some stalling in the middle-market with aspirational buyers unable or unwilling to “trade up” because of the tax implications.

I was not naïve enough to think that my presentation would instantly convert politicians (and their civil servants) to my way of thinking. I knew this was likely – at this stage at least – to be no more than a listening exercise. But that does require people to listen and the reaction to my input on this occasion could be summed up in the phrase “in one ear and out the other”.

Higher rates can be cut

Business people often accuse politicians – correctly – of not understanding how business works. Equally, business people need to accept that politics is a much more complicated art form and that there are times when things which may sound logical and desirable, simply cannot happen for political reasons. I do get that.

However LBTT is not one of those situations. Along with other property professionals I have consistently argued that higher rates of the tax can be cut without putting an extra burden on homeowners at the lower and middle sectors of the market. This is because the additional income from increased transactions at the top end would compensate for resultant loss of revenue caused by a reduction in rates – and might even provide a surplus.

But at St Andrews House I got the distinct impression that the Scottish Government could not possibly be seen to be giving tax concessions to wealthy Scots while many of their fellow countrymen at the lower end of the income scale were suffering the effects of austerity – in its opinion a situation caused, of course, by Westminster.

Comparatively few rich Scots

Isn’t this looking at the issue from the wrong end of the telescope? I would have thought that, outside of a communist system, any Scottish Government would want to increase the number of wealthy Scots, if for no other reason than this would automatically increase the income tax take. The number of “rich” people in Scotland is remarkably low in comparison to the rest of the UK.

In 2017-18 there were 2,513 million taxpayers in Scotland, of whom only 14,000 paid the top rate, which is currently 46 per cent. The figure for the rest of the UK is 308,000, meaning that, based on population, there are roughly half the level of top-rate taxpayers in Scotland than in the rest of the UK.

The number of Scots paying tax at the higher rate (those earning between £43,350 and £150,000) is more equitable on a UK basis, though still smaller proportionally than in England.

Many of these people are being deterred from moving to a bigger or better home (and therefore paying tax into the government’s coffers) by current LBTT rates. Someone earning, say, £100,000, might be able to afford a £750,000 house but who can blame them for not wanting to hand over £48,350 in tax – just under £21,000 more than it would be for a similar transaction in England?

The St Andrews House event concluded with a statement that the Government would follow up on specific points raised with individuals and welcomed “further contributions”. That’s at least something. But the impression I came away with is that any meaningful alteration to LBTT is going to lie in a Government office pigeon hole for the foreseeable future.

- David Alexander is MD of DJ Alexander.