Scottish property mustn’t bite the foreign hand that feeds - David Alexander

Whither this year’s Budget? It seems barely credible that so rapid has been the change brought about by the coronavirus that Rishi Sunak’s first delivery as Chancellor barely a month ago is almost forgotten.
Until recently, Scotland was proving attractive to overseas property investors, says Alexander.Until recently, Scotland was proving attractive to overseas property investors, says Alexander.
Until recently, Scotland was proving attractive to overseas property investors, says Alexander.

Yet life must go on with as much normality as possible and it is worth returning to one property-related decision contained within the Budget – to add a levy of 2 per cent of the price of any residential property purchased by an overseas buyer.

This, of course, will apply only to England and Wales because in terms of Scotland it’s is a devolved matter. However, it is ironic that a Nationalist government at Holyrood quick to poo-poo Westminster is, nevertheless, not slow in aping additional property tax measures passed by the House of Commons.

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Not just aping but “improving” (if that is the correct word) on them – like Holyrood’s decision not just to follow Westminster’s introduction of a 3 per cent tax on the purchase of additional dwellings but to bump it up to 4 per cent.

I would not be surprised if the unholy alliance of the SNP and Greens were, once circumstances make possible, to copy and pile on an additional levy of 2 per cent (or more) on house purchases in Scotland by overseas buyers. Presuming such a scenario, here is the maths: Property, £1.25 million; LBTT, £108,350; additional dwelling tax (4 per cent), £50,000; overseas buyer levy (2 per cent), £25,000. Total: £183,350.

Until quite recently, Scotland was proving attractive to overseas property investors, especially when the London and south-east market showed signs of overheating. Top-end flats in Edinburgh (and to a lesser extent Glasgow) were particularly in demand.

But this has been greatly diminished by the differences that now exist north and south of the Border in terms of LBTT being greater (for most investors) than Stamp Duty and a higher additional dwelling rate in Scotland. The total tax bill on the hypothetical £1.25m property above would be £131.250 in England – more than £50,000 less than in Scotland.

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The common response of the left-leaning, big-state Scottish political establishment seems to be that if some rich foreigner can afford a £1.25m property then an extra 50 grand in tax (over England) is neither here nor there. But I’m sorry to inform them that life outside the Holyrood bubble just isn’t like that.

I was talking recently to an American financier who has acquired a majority share in a Scottish business. He likes Scotland and talked seriously about moving here to live for a number of years. But when I informed him of the tax implications of purchasing a house in his price range he backed off.

So not only has the government lost out on money from a house purchase that a more moderate tax regime would have produced, it has also deterred a talented individual from setting up home here.

I realise more moderate members of the Scottish Government are – understandably – motivated by concern that too much overseas money coming into our property market would give an unhealthy boost to prices which would financially prejudice first-time buyers, particularly in Edinburgh and other hot spots.

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Having said that, overseas buyers (for whom property is a long-term investment) tend to be welcomed with open arms during those periods when the market is experiencing a downturn and vendors find it difficult to shift their homes. Let’s not forget this overseas influence is (or at least was) a vote of confidence in the wider Scottish economy.

I have no problem with a fair and “progressive” taxation system (one in which the better-off pay a bigger proportion of their income in tax than the less well-off) but it is clear that as things stand the Scottish government is too eager to bite the hand that feeds it – both in terms of income tax and LBTT. Therefore I would urge caution before it is decided that an overseas buyer tax is another magic money tree – which it certainly won’t turn out to be.

- David Alexander is managing director of DJ Alexander

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