Punitive property taxes will force buyers to look elsewhere - David Alexander

The property market in Scotland since the pandemic has been little short of miraculous. Most people predicted that prices would be stable at best but most likely fall in the ensuing years. However, the outcome has been rocketing house prices and one of the most buoyant housing markets in years.

Since March 2020 until September 2023 (the latest date for which there are statistics) average house prices across Scotland have risen by £41,492 to reach £192,117 which is an increase of 27.5 per cent in three-and-a-half years which, historically, is an extraordinary rate of growth.

For homeowners this is welcome news. But with these rises come the penalty of higher taxes charged on property purchases. Scotland has the highest taxes in the UK for buying a home with first-time buyers and anyone purchasing a home worth more than £325,001 particularly penalised for wanting to own a property north of the border.

The result is that revenues from Land and Buildings Transaction Tax (LBTT) totalled £619.6m in the 12 months to December 2023. While this is slightly lower than 2022 when £623.1m was raised it is £224m higher than the pre-pandemic year of 2019.

R​evenues from Land and Buildings Transaction Tax totalled £619.6m in the 12 months to December 2023 (Picture: John Devlin)

Almost all the taxes raised arose from properties sold for more than £325,001. The 16,430 transactions above this threshold raised £350.5m which is 82.9 per cent of the total £422.7m raised in LBTT (this is the figure for residential sales with Additional Dwelling Supplement (ADS) figures removed). This means that the average tax levied per transaction was £21,332.

The Scottish Government line is that higher taxes in Scotland are only paid by those with the broadest shoulders. But there can be few who believe that someone who can afford to buy a home for £325,001 is rich. These individuals are not millionaires but are nurses, police officers, and teachers doing essential work who simply want to buy a property to live in.

That they are being charged substantially more than their English counterparts runs the risk of creating a two-tier market where Scots increasingly see themselves being punitively charged simply for wanting to live in Scotland.

Were these buyers to purchase a home in England then they would not start to pay the 10 per cent tax until the value of their property was greater than £925,000. In Scotland, a home costing £325,001 is the starting point for the 10 per cent levy. In Scotland 12 per cent is charged on properties selling for more than £750,000 whereas south of the Border this level does not kick in until prices reach £1.5m. It is clear that Scottish homebuyers are being charged considerably more in tax for the privilege of owning a home north of the Border.

The news this week that hundreds of staff working for the Scottish Government pay English taxes because they choose to live south of the border but work in Scotland could be a sign of things to come.

But it is not just homeowners who are being penalised. Of the £619.6m taxes raised £196.9m is from the additional dwelling supplement (ADS) which is charged on second homes and properties purchased by landlords and property investors to rent. This is 31.8 per cent of the total raised and is £44m higher than 2022 which was 24.5 per cent of the previous years’ total.

Given the punitively high taxation this group of buyers pays it is testament to their resilience and belief in the Scottish market that they are buying properties in ever larger numbers because they want to invest in the private rented sector, or they wish to have a second home here. Either way they are contributing substantial levels of tax to the Scottish purse and should be encouraged to invest more in the future.

Scotland risks putting off homebuyers, investors, landlords, and second homeowners with a much more punitive tax take. We must have a tax system which is more fairly based and encourages homeownership and investment in the private rented sector. We should always be aware that those with more money always have the option of moving elsewhere and it would be a mistake to drive these individuals and companies away with excessive taxation.

David Alexander is CEO of DJ Alexander Scotland Ltd