But is it always fair? The general principle that those with the broadest shoulders should bear the greatest burden is a common maxim of all politicians and for most of us this makes sense. The more you earn the more you pay. The more you spend the more a tax is levied on that expenditure and, in this way, money is provided to fund the services that all of society benefits from.
However, there does come a point when you can begin to wonder if some charges are justified or if the pendulum of taxes has not swung too far in the wrong direction. Our latest analysis of the Land and Buildings Transaction Tax (LBTT), charged on the sale of all homes with a value in excess of £145,001 in Scotland, reveals that a relatively small number of people in Scotland contribute a lot. Of more concern is that they contribute substantially more than people in England do for buying properties of the same price.
The amount collected overall by the Scottish Government has increased by nearly a quarter of a billion pounds in the last three years rising by £247m since 2019 to a total of £642.6m by the end of last year. At the top end (on prices of £750,000 and more) just 1270 sales generated £107.9m which is equivalent to £84,960 per property. For a property investment or second home the charges are even higher through the additional dwelling supplement (ADS).
In the last year landlords, investors and second homeowners contributed £172.1m through ADS – equivalent to 26.8 per cent of all property taxes – with the last five months of 2022 being the highest ever monthly figures recorded. This means that £560.2m (87.2 per cent of the total raised) was charged to the people who paid over £325,001 for a property, property investors, landlords and second homeowners.
That is a very high percentage of revenue from a relatively small number of people and leaves the Scottish market particularly vulnerable to any shifts in sentiment in this group.
Given that these substantial revenues were generated prior to the recent increase from 4 to 6 per cent in ADS announced in December’s budget, and applies to all purchases which are for properties not to be used as your principal residence, there is a risk that the substantial bounty generated may be about to dry up.
If someone can buy a property 60 miles south of Edinburgh for a considerably lower tax charge both on the standard LBTT rate and the ADS then they may very well choose to do so. Some may say we don’t need property investors or second homeowners in Scotland. Of course, they are within their rights to believe this but the long-term problem is who will provide homes for tenants? Who will provide jobs in rural areas for holiday lets, and where will people go for holidays if Scotland is made a less attractive place to live and invest?
Equally if you are offered a job which can be conducted from home why wouldn’t you buy a property where the tax costs are considerably lower and consequently get more for your money?
In an increasingly globalised world where money can easily shift from market to market and country to country the more insular, the more prohibitively taxed you are, the greater the likelihood that individuals, companies, and investments will go elsewhere.
We need to sustain, maintain and encourage all parts of the property market. As a revenue source it is a strong earner for all governments, it is popular electorally, and underpins the economy. Scotland’s property market needs to be nurtured and grown if it is to thrive and taxes are an integral part of that encouragement.
David Alexander is the chief executive officer of DJ Alexander Scotland