Scottish rental market needs modern translation - David Alexander

Last week’s column referred to a substantial financial penalty imposed on a landlord by Scotland’s First-tier Housing Tribunal after the deposit on a rental property had not been returned on the departure of the tenant.

However the issue went deeper than that. The property had been purported, by the landlord’s representatives, to be a short-assured tenancy, something which has not existed in Scotland since the end of 2017.

The “tenant” was, in fact, an England-based company which leased the property to accommodate employees who were engaged in contract work in Glasgow. My first thought was surprise that such a large company with what seems to be an excellent pedigree had not been aware there was no longer any such thing as a short assured tenancy north of the Border. In reality, legislation has created a significantly different rental market in Scotland – something which anyone from England should be aware.

When short assured tenancies were introduced in 1989 the legislation applied throughout Great Britain, there being no Scottish Parliament or Welsh Senate at the time. However with housing a devolved matter, Holyrood voted to end short assured tenancies in Scotland from 1 January 2018. Since then any tenant renting privately (so long as there are no behavioural or financial issues) has security of tenure, albeit with three exemptions. A landlord can repossess a property only if he: A} wishes to sell; B} wishes to use the property as his “main residence”; C} wishes to carry out a major refurbishment of the property. Of course “refurbishment” is open to interpretation and I have no doubt this has, on occasion, been used as an excuse to end a tenancy but in general terms, tenants in Scotland enjoy much greater security than their counterparts south of the Border, where a six-month tenancy is the norm. Scottish tenants also have the benefit of being able to end a lease by giving just one month’s notice.

Landlord regulation and safety rules are also stricter in Scotland although England has caught up, to some extent, in recent years.

Turning to finance, the same Capital Gains Tax and Corporation Tax regulations apply throughout the United Kingdom but there are differences between Scotland and England in paying tax from income, including rental income. A personal allowance of £12,570 applies to both but then the rates separate; in England the basic rate of 20 per cent extends to £50,270; in Scotland the rates are 19pc from £12,570 to £14,667 then 20pc to £25,296, then 21pc to £43,662, meaning that in Scotland the higher rate kicks in at a much lower level than in England - and is 41pc compared to 40pc, just as the additional rate on earnings above £150,000 is 46pc as against 45pc.

However perhaps the biggest point to ponder is the significant difference in stamp duty, called Land and Buildings Transaction Tax (LBTT) north of the Border.

In Scotland there is no tax to pay on purchases up to £145,000 whereas in England the 2pc rate kicks in at £125,000. Up to £250,000 the rates are the same but then divergence really kicks in. The highest rate, 12pc, is levied on any purchase over £750,000 in Scotland but only those that exceed £1.5million in England. In practical terms stamp duty (England) on a £500,000 flat transaction is £14,500 whereas under LBTT (Scotland) it is £23,350.

It is, therefore, essential that anyone from south of the Border thinking of involvement in the Scottish rental market should be fully aware of the system here. If not the hassle of a claim for a lost deposit could be the least of their worries.

David Alexander is managing director of DJ Alexander