To relatively little fanfare and without much in the way of useful guidance the Scottish Government has announced that from 1 April 2016 a supplementary Land & Building Transaction Tax (LBTT) charge will apply to the purchase of additional residential properties in Scotland. Basically this means that homeowners wishing to buy a second home or buy-to-let property will face an additional tax charge of 3% of the purchase price.
All residential property purchases by companies and sole traders will be affected by the supplement regardless of whether this is a second home or not.
LBTT is currently payable on all residential property purchases over £145,000. You will still have to pay the standard rate of LBTT on the purchase of any second home (see illustration below for current rates) but assuming that you pay £40,000 or more for your second home then you will pay an additional LBTT charge of 3% of the whole of the purchase price
The current “standard” rates and additional homes rates are outlined below:
| Purchase price | Existing LBTT rate
|
Additional Homes Supplement
(range of additional LBTT payable) |
| Up to £145,000 | 0% | 3% (£1,200 – £4,350) |
| Above £145,000 to £250,000 | 2% | 3% (£4,350 – £7,500) |
| Above £250,000 to £325,000 | 5% | 3% (£7,500 – £9,750) |
| Above £325,000 to £750,000 | 10% | 3% (£9,750 – £22,500) |
| Over £750,000 | 12% | 3% (£22,500 – ) |
Please note that “standard” LBTT is payable at the rate given on that part of the price falling within the given price bracket (e.g. for a purchase at £275,000 “standard” LBTT is payable as follows: 2% of £105,000 (being the amount of the price between £145,000 and £250,000) plus 5% of £25,000 (being the amount of the price above £250,000).
Whilst it is not possible to go into all the detail of the new legislation within the scope of this short article we would make the following comments:
- If you are selling your main residence but have settled the purchase of your new main residence before the sale of your existing property, the additional 3% would be payable but refundable as long as you sell your previous main residence within 18 months of the purchase of your new main residence.
- If you purchase a new main home but decide to rent out your previous property then you will be deemed as having purchased an additional home and the 3% supplement will apply.
- In order to prevent couples from avoiding to pay the supplement by purchasing additional properties in sole names an individual will be deemed to be the owner of a residential property where it is owned by their spouse, civil partner, cohabitant or child under 16.
- Property investors purchasing 6 or more residential properties in one transaction will not have to pay the new 3% LBTT supplement.
If you have any queries regarding this new supplementary tax or more generally about purchasing a first or additional home please contact me, Ross Leatham, on 0141 552 3422 or by email rjl@mitchells-roberton.co.uk