Reaction as Scotland does a Sunak on housing market

House buyers in Scotland will not pay tax on properties sold for for less than £250,000 after the Scottish Government responded to the Westminister Government’s Stamp Duty holiday.

Scottish Finance Secretary Kate Forbes followed UK Chancellor Rishi Sunak by raising the threshold for Land and Buildings Transaction Tax (LBTT) which is currently £145,000, and £175,000 for first time buyers.

Forbes said the change could not be made immediately because legislation will have to be prepared.

The change will mean about eight in 10 house buyers in Scotland will not pay LBTT. The average cost of a residential property in Scotland was £178,991 in 2018-19.

Sunak announced stamp duty will not be applied to sales of properties under £500,000 in England, but Forbes said the lower threshold in Scotland allows her to also make an extra £50 million available to help 2000 first-time buyers.

She said the Institute for Fiscal Studies has warned first-time buyers may be worse off because of the UK Government’s changes, and she pledged a further £50 million for the Scottish Government’s First Home Fund.

That is a shared equity scheme that can provide first-time buyers with up to £25,000 to help them get on the property ladder.

She said: “By taking a distinctive approach in Scotland to raising the starting threshold under LBTT, I am able to target further support elsewhere and to target it where the UK Government failed to provide funding to devolved administrations.”

Forbes also confirmed £100 million of spending this year for employment support and training as she responded to Sunak’s summer economic update.

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She told MSPs: “That is why I am committing today we will make an additional £100 million available this year for targeted employment support and training to help keep people in work or help them retrain.”

Sean McGinness, head of the Real Estate Practice Group at Saffery Champness, said: “The Scottish government has not matched the bold increase in the nil rate Stamp Duty Land Tax threshold to £500,000 taken by the Chancellor yesterday for properties in England and Northern Ireland.

“The Government says this lower threshold is warranted as it raises 80% of purchases in Scotland out of the LBTT net. 

“The measure will be welcomed by housebuilders and developers, who will hopefully be buoyed by the fact that the average new build home in Scotland, costing around £225,000, will now face no LBTT which should stimulate demand and activity in the market.

“However, just as in England the question will be whether housebuilders can achieve the right level of completions to meet demand without over-producing and being left with unsold stock when LBTT increases back to its normal level – which could reduce margins.

“In addition, the disparity between the tax thresholds in Scotland and England means activity at the upper end of the market in Scotland is likely to be dampened. Particularly in major urban centres like Edinburgh, properties are routinely valued at over £500,000 which, in England, would now be free of SDLT but which in Scotland would only see a minor reduction and an expected tax bill of over £20,000.

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“Perhaps most importantly, though, the silence thus far on when the measures will actually take effect could have a paralysing effect. However attractive on paper, buyers are highly unlikely to follow through on any transactions until there is clarity, which could have a detrimental near term impact on those housebuilders struggling with cash flow issues. It is hoped the Government act soon to bring into force the increased nil rate band.”

Stewart Mathieson,head of markets at EY in Scotland, said: “Although the threshold in Scotland will sit lower than the UK, £250,000 versus £500,000, this reflects a much lower average cost of housing in Scotland compared with England and Wales. It is expected that as a result of this measure 80% of residential property purchases in Scotland would be exempt from LBTT.

“With the benefit of time for planning, the Chancellor was able to put his Stamp Duty measures in place with immediate effect, while the Cabinet Secretary for Finance was not afforded the same foresight and has been unable to act at the same pace.

“Anyone currently in the process of buying a house in Scotland under £250,000 may look to stall the purchase until this measure is in place. Importantly, assurances have been given that any delay in the implementation of the change to LBTT will be minimised.

“The change to LBTT, along with the bespoke commitment to first time buyers in Scotland to help fund their deposit, also announced by Ms Forbes, is likely to ultimately drive the desired momentum in housing transactions. This, coupled with the reduction in the VAT rate to 5% in the hospitality and tourism sectors, will in turn hopefully help stimulate other sectors in the Scottish economy.”

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Homes for Scotland director of Policy Fionna Kell said: “These announcements are welcome support for the Scottish housing market but both require further action if the benefits are to be fully maximised for individual customers and the wider economy.

“On LBTT, it is absolutely crucial that we get an early date for implementation otherwise we are at risk of seeing already fragile market recovery stall as buyers delay purchases.

“With regards to the First Home Fund, this will help those who have been affected by mortgage lenders reducing Loan to Values but we also need to see the scheme extended beyond next March as so many transactions and housing completions have been delayed by the construction shutdown.”

“Both of these issues are core elements of the industry recovery plan we are preparing to submit to the Scottish Government.”


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