Homebuyers get boost as purchase tax threshold raised

Scots looking to buy a new home worth up to £250,000 will not have to pay Land and Buildings Transaction Tax after the Scottish Government moved to give the property market a boost as the Covid-19 lockdown ends.

Scottish finance minister Kate Forbes said the government would move to raise the LBTT threshold from £145,000 as soon as possible, taking eight out of ten residential property transactions out of taxation.

The government's first time buyers scheme will also see a further £50m to help people with deposits for a home.

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Cabinet Secretary for Finance, Kate Forbes MSP has made her response to the Chancellor's summer statement.

Ms Forbes announcement in Holyrood came as she responded to yesterday’s package of economic stimulus measures by the Chancellor of the Exchequer, which included a stamp duty “holiday”. Rishi Sunak said residential property transactions in England and Northern Ireland, costing up to £500,000, would be exempt from stamp duty land tax until March 31 next year.

The Scottish Government immediately came under pressure from the Scottish property sector and opposition MSPs to follow suit with LBTT – the tax that replaced stamp duty in Scotland five years ago.

Today she told MSPs that she had “listened” to those calls, and would be raising the threshold at which LBTT must be paid from £145,000 to £250,000 to “stimulate housing market activity and the economy”.

However unlike in England the change won’t happen immediately, raising concerns that the housing market could now stall until it is implemented.

Ms Forbes said “It's important that any change is focused on the particular needs of the Scottish economy,” she said. “Because of the time required to preapre legislation and for Revenue Scotland to be ready to collect and manage the tax, the change will not come into force immediately. But I will work to make sure it does so as soon as possible.

"Eight out of ten people purchasing a property will be taken out of LBTT and all home movers purchasing a property above £250,000 will be £2100 better off.”

She added: “Changes to LBTT offer support to all those purchasing a home, this is a blanket approach and may not help first time buyers. I’m pleased therefore to offer further targeted support for those who may be most concerned about making such an investment at this time.”

Ms Forbes revealed that the Scottish Government’s First Home Fund, launched last December would be boosted by £50m, raising it to £200m, to ensure it was able to meet demand as a result of “limited availability of higher loan to value mortgages in the market” and the release of “pent up demand”.

She said the money would come from “recycling underspend in the Scottish Government’s financial transactions budget” and it would help “an estimated additional 2000 first time buyer purchases".

“By taking a distinctive approach in Scotland to rasing the starting threshold of LBTT, I'm able to target further support elsewhere and to target it to where the UK government failed to provide funding to devolved administrations,” she said.

However while the move was welcomed by opposition MSPs, Scottish Conservative finance spokesperson Donald Cameron said the delay in implementing the rise to the LBTT threshold could be counter-productive.

“Rishi Sunak's cut to stamp duty plainly doesn’t apply to Scotland and while the Cabinet Secretary has announced a tax break for LBTT up to £250,000 there remains a significant disparity between Scotland and the rest of the UK. Can she explain why she's not committing to a fully equivalent cut and why it cannot be done immediately given that there will now be a massive incentive to delay and cause disruption to the market at that bracket.”

Ms Forbes said: “Eight out of ten buyers in Scotland will be taken out of paying LBTT. As Donald Cameron knows the Scottish market is a lot different to there rest of the UK, and so tax devolution is about seperate tax policies for Scotland anot just about matching those in the rest of the UK. And he will know full well the block grant adjustment, which hasn’t been quite confirmed by the UK government, does not allow us to fully replicate decisions made elsewhere.

"In terms of why it cannot be done immediately, we will respond as quickly as we can in the circumstances. I had no advance warning of the intention to make the change to SDLT [stamp duty land tax] I heard when everyone else did. I've been clear that time is required to prepare legislation and for Revenue Scotland to be ready to collect the tax. The alternative would have been sto say nothing and to create even more uncertainly in the market. I’ve chosen to give that clarity.”

Pressing the point, Scottish Labour's Jackie Baillie said that any “delay in implementation would cause postponement in house sales and purchases which is unhelpful.”

The Chartered Institute of Taxation also raised concerns about the delay in implementing the change to the threshold. Commenting on the announcement, Joanne Walker, CIOT Scottish Technical Officer, said: “There is a risk that by not increasing the threshold immediately, people will put off buying a house until the tax change takes effect so that they can benefit from today’s announcement.

"It will be important for the Scottish Government to set out quickly when these changes will take effect to prevent the housing market stalling in its recovery.

“Once implemented, the changes will mean that an additional 34 per cent of transactions will be taken out of LBTT, taking the total to 79 per cent. This will generate a maximum saving to taxpayers of £2,100.

“That said, it remains the case that across the UK, there is still some uncertainty over who gains from a change of this kind. A 2011 UK government study found that previous cuts to help first-time buyers were mostly absorbed in a higher house price, benefiting sellers rather than purchasers”.

Ms Forbes said: “We will move incredibly fast. There is a legislation process to go through and Revenue Scotland need to be ready so the change can be introduced effectively and efficiently. I cannot put a precise date on it at the moment and that would not be particularly helpful in terms of the uncertainty in the market.

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