Rollos

STAMP DUTY REFORM AND LAND AND BUILDINGS TRANSACTION TAX

In October, under powers already invested in the Scottish Parliament, the Scottish Cabinet Secretary for Finance, Employment and Sustainable Growth announced the rates and bands for stamp duty under the Land and Buildings Transaction Tax (LBTT) on residential purchases as part of the Draft Budget for 2015-16. These proposed tax rates and bands are subject to Parliamentary approval. If approved, these new regulations will come into play in April 2015 to replace Stamp Duty and whilst this is good news for some, it is also bad news for others. The proposed new banding is as follows:-

Purchase Price LBTT
Up to £135,000 0%
Portion of purchase price between £135,000 and £250,000: 2%
Portion of purchase price between £250,000 and £1m: 10%
Portion of purchase price above £1m: 12%

LBTT is charged progressively, meaning that the new rates will only apply to the amount of the purchase price that falls within the particular tax band. For example, LBTT on a house bought for £275,000 after 1st April 2015 will be charged at 0% on the first £135,000; 2% on the next £115,000 and 10% on the remaining £25,000. Under the existing tax regime the tax would be £8,250 but under the new regime the tax would be £4,800, a saving of £3,450.

Compared to the existing regime, under the new tax buyers purchasing property under £325,000 will be making a saving, but above this level, the tax charges rise steeply. For example a purchase price of £400,000 will result in an increase in tax of £5,300 and a purchase price of £500,000 will result in an increase of £12,300. As a consequence of this progressive increase in the tax many estate agents and industry experts have predicted that after April 2015 there will be a downturn in the sales of properties attracting higher levels of tax as buyers struggle to find the necessary funds.

However, and to further complicate matters, the Chancellor of the Exchequer in his Autumn statement introduced new levels of tax for the whole of the UK effective from 4th December. Accordingly, we in Scotland will be paying stamp duty under the Chancellor's new tax unless/until LBTT comes into force next April. The new UK tax will also be progressive, much like the LBTT, however the rates are not nearly as high. They are as follows:-

Purchase Price LBTT
Up to £125,000 0%
Portion of purchase price between £125,000 and £250,000: 2%
Portion of purchase price between £250,000 and £925,000: 5%
Portion of purchase price between £925,000 and £1.5m: 10%
Portion of purchase price above £1.5m: 12%

Similar to LBTT Stamp Duty on a house bought for £275,000 will be charged at 0% on the first £125,000; 2% on the next £125,000 and 5% on the remaining £25,000 resulting in a tax charge of £3,750. The point at which buyers will be charged more tax than they were previously is £937,000.

So, what does this all mean for buyers and sellers? Between now and April 1st 2015 most buyers will benefit from the Stamp Duty reform. Thereafter the position is unclear but if LBTT receives parliamentary approval the tax changes may prove more costly to you dependant upon the value of the house that you are buying. As a seller it may impact on the interest shown in your property and the price that you hope to achieve. If you are thinking about placing your property on the market for sale it may be to your advantage to do so now rather than to wait until the generally recognised Spring Market. We at Rollos offer a free valuation and market appraisal and so would be happy to meet with you to discuss your property and what these changes mean for you.

If you have questions on this topic, or any other property related matter, we are happy to offer advice and so welcome your call.
Posted by Heather Davidson at 10/12/2014 16:01:14
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