What do the property tax adjustments outlined in the Scottish budget mean?

The Scottish Government has announced that the Additional Dwelling Supplement (ADS) charge for Land and Buildings Transaction Tax (LBTT) will increase from 4% to 6%. 

Scotland’s equivalent of stamp duty is called LBTT. Both residential and commercial property transactions in Scotland are subject to this property tax. 

In addition to the LBTT fee, the ADS is an additional premium charged on most second-house purchases.   

It means that you will be required to pay the 6% ADS fee if you are purchasing a residential property and you already own a home.   

If you intend to recover the ADS amount from the sale of your first property, you must do it within 18 months. 

The decision was made public as a component of the Scottish Budget, and the ADS increase will go into effect on December 16, 2022. 

According to John Swinney, the deputy first minister, these tax policies “aim to strike a balance between ensuring there is adequate money for public spending and reflecting the severe economic conditions affecting people and businesses. 

“On Land and Buildings Transaction Tax, the primary residential and non-residential rates and bands won’t change. 

“Today, legislation will be introduced to raise much-needed additional revenue by raising the Additional Dwelling Supplement rate from 4% to 6%.” 

The NHS and other public services will receive £34 million, according to the Scottish Government, as a result of this ADS hike. 

What effects will this have on property tax of the Scottish government? 

According to John Swinney, the increase in ADS has been implemented to help remove obstacles from the way first-time homebuyers enter the housing market. He continued, “Increasing the tax due on the purchase of additional dwellings like second residences maintains our commitment to protect housing opportunities for first-time buyers in Scotland, while also raising vital additional revenue.” 

Landlords should be aware of the rate of taxes they will have to pay when they acquire a buy-to-let when they rent it out, and when they sell it so they can plan their budgets properly. 

In a residential real estate transaction, the LBTT payment amount is based on the cost of the home. With regard to the LBTT, there are multiple bands, and each band is subject to a different tax rate.  

The lists below are the current rates and bands.   

Purchase price  LBTT rate  
Up to £145,000  0%  
£145,001 to £250,000  2%  
£250,001 to £325,000  5%  
£325,001 to £750,000  10%  
Over £750,000  12% 

How do the new rates seem? For instance, if you purchased a property for £250,000, you would be required to pay £2,100 in LBTT as well as £15,000 in ADS, for a total of £17,100. 

To determine how much tax you’ll have to pay when buying a property, use our LBTT calculator.

In terms of the buy-to-let market, what does it all mean? 

“The increased tax on purchasing a second home will have an effect on the private rental market, where some landlords are selling up due to increased mortgage and other costs,” says the head of SGT Law Firm

SGT Law Firm can assist if you’re searching for assistance as a landlord or if you’re interested in entering the buy-to-let market. Our team is knowledgeable about what is occurring in the local market right now and has the abilities and experience to give you the direction and support you require in trying circumstances. 

Property taxes in Scotland, England and Northern Ireland differ greatly from one other

Former Chancellor Kwasi Kwarteng did not reduce stamp duty rates in the mini-Budget on September 23, but he did change the thresholds at which it begins to apply, starting at transactions of £250,000 (double the previous limit of £125,000), and the first-time buyer exemption will increase from £300,000 to £425,000.  

Chancellor Jeremy Hunt stated in the Autumn Budget Statement on November 17 that the stamp duty thresholds would return to their prior levels on March 31, 2025. 

This indicates that there is currently a significant gap between first-time purchasers in Scotland and England, Ireland, and Northern Ireland. First-time buyers in England have a higher purchase price threshold before property tax becomes due for properties in Dumfries and Galloway and the Scottish Borders, where cross-border movements are common. 

Glasgow landlords can get legal advice from SGT Law Firm

SGT Law Firm is a skilled letting agent based in Glasgow who can provide you with guidance on every aspect of buying and renting out properties. Call us TODAY at 0141 881 8795 or visit our website for more information.

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