Will the Stamp Duty Tax Relief Benefit First-Time Buyers in Scotland?

by Catriona Conway-Mortimer

Monday, December 4th, 2017

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David Marshall, Operations Director at Warners Solicitors & Estate Agents, gives his insight into the effects that the eradication of Stamp Duty in England might have on the Scottish Market

This month, big news broke that Stamp Duty Land Tax (SDLT) is to be abolished for many first-time buyers in the rest of the UK. Philip Hammond’s major budget announcement has since ignited speculation across the country about what this might mean for the Scottish market.

The tax break was one of the key takeaways from the autumn budget, signifying that first-time buyers in England, Wales and Northern Ireland will no longer have to pay the land tax on a property worth purchased for than the average £300,000.

But in Scotland, SDLT was replaced north of the border with Land and Buildings Transaction Tax (LBTT) in 2015.  So, as Scotland now manages its own tax, its first-time buyers will see no benefits from Wednesday’s announcement.

Over the past few days we’ve heard a number of people ask whether the Scottish government is likely to follow suit. So far, I’d say that the early indications are that they will not.

Immediately after it had come to light that first-time buyers south of the border would be exempt from paying property  tax, the First Minister’s Chief of Staff, Elizabeth Lloyd, tweeted “[the] average of all house prices in Scotland is £145k which is where LBTT starts“, demonstrating that, unlike their southern counterparts, most first-time buyers in Scotland already don’t pay LBTT.

Her message suggests that the SNP is setting out its stall to resist any calls for a similar tax break in Scotland. The political landscape can change quickly though, and changes to property taxation north and south of the border have followed very similar trends in recent years.

While Lloyd’s point does show that the situations in England and Scotland aren’t exactly comparable, it’s worth pointing out that neither Stamp Duty nor LBTT are structured to reflect regional differences in house prices. In areas such as Edinburgh, for example, house prices are higher so more first-time buyers will have to pay LBTT. Our data shows that just 29% of properties sold in Edinburgh this year were below £145,000. The vast majority of properties (57%) were sold at prices between £145,000 and £300,000 and 14% were sold above £300,000.

Nonetheless, housing in Scotland is still far more affordable than it is across the rest of the UK, even when you take into account the recent tax relief. So any ideas of buyers flocking south to avoid paying tax simply don’t make sense.

In terms of whether abolishing LBTT would benefit first-time buyers in Scotland, the answer is two-pronged. Undoubtedly, a tax break would benefit people on an individual level, leaving them with more money to put towards a deposit or to furnish their new property.

If a couple were looking to buy their first home at £200,000, for example, they would save £1,100 in tax. Similarly, if they bought a property for £250,000 or even £299,000, they would save £2,100 or £4,450 in tax, respectively.

In terms of the overall market, the benefits would be limited. The fundamental problem for first-time buyers who are struggling to get onto the ladder is that property prices are too high. The population of Scotland is rising, people are living longer and the average household size is reducing.

As a result, the total number of households across Scotland – especially in Edinburgh – is projected to rise for the foreseeable future and the rate at which we are building homes has not been sufficient to keep pace.

The fundamental issue that needs to be addressed, therefore, is an increase in supply of new, affordable housing for first-time buyers in the capital. While any tax relief would no doubt be welcome in the short-term, the long-term benefits to the market of this move in isolation would be fairly minimal.

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Catriona Conway-Mortimer, account executive with Holyrood PR in Edinburgh, Scotland

Catriona Conway-Mortimer

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