Tax hike on Scotland second homes 'makes no financial sense', says leading estate agent

A tax rise for people buying second homes in Scotland “makes no financial sense” and risks damaging the housing market, a senior property lawyer has said.

Andrew Diamond, partner and head of residential property at solicitors and estate agents Lindsays, questioned the Scottish Government’s motive for increasing the Additional Dwelling Supplement (ADS).

Ministers announced the additional rate of tax paid by those with more than one property would increase from 4 per cent to 6 per cent as part of the 2023/24 Budget. That compares to 3 per cent in England. The independent Scottish Fiscal Commission forecasts the hike will generate an extra £34 million.

But Mr Diamond, a lawyer with 30 years’ experience in the property industry who is also chairman of solicitors’ property collective ESPC, said he believed there would actually be revenue losses, with buyers already being driven away.

Andrew Diamond, partner and head of residential property at solicitors and estate agents Lindsays, criticised the tax hike.

He said: “The question many in my sector are asking is whether this is really about raising revenues or is it about discouraging investors and second home owners? If it’s the latter, that’s the Scottish Government's prerogative. But I would encourage them to say so and not dress it up as a way in which to raise new revenue that might be used to support first-time buyers – because I am certain it won’t raise that revenue.

“I suspect the effect will be that the tax take for the Scottish Government actually falls because potential buyers are put off by what they have to pay. We are already seeing investors buying in England instead of Scotland because of this. This is bad news for the housing market and the wider economy. It makes no financial sense.”

Lindsays’ estate agency work centres mainly on Edinburgh, the Lothians and Tayside. Mr Diamond added: “If the Scottish Government ends up collecting less tax because fewer people choose to invest, it will actually reduce its revenues and financial ability to help first-time buyers – not to mention having fewer homes available for rent. Housing issues may actually worsen.”

ADS is added to any Land and Buildings Transaction Tax (LBTT) that may be due on a home purchase of £40,000 or more. It can apply to second homes, rental properties and holiday homes.

A Scottish Government spokeswoman said: “The progressive rates and bands for LBTT and the arrangements for the ADS reflect the specifics of the Scottish housing market and prioritise support for first-time buyers. Increasing the ADS rate to 6 per cent protects opportunities for first-time buyers, helping them compete more fully with buy-to-let investors or those buying second homes.

“The Scottish Fiscal Commission forecasts the increase will generate additional revenue of £34m in 2023/24, supporting public services in Scotland.”