Scottish Stamp Duty overhaul to help struggling homebuyers
Homebuyers in Scotland could soon benefit from lower Stamp Duty charges as the Scottish Government is granted powers to set its own rates and thresholds for the first time.
The Scottish Parliament has passed a new bill for a Land and Buildings Transaction Tax (LBTT) which will replace the UK’s Stamp Duty Land Tax (SDLT) in Scotland by April 2015.
It’s the first tax bill the Scottish Parliament has passed for over 300 years and will allow Holyrood to set its own rates and thresholds on the levy of land and property sales without the interference of Westminster.
This move could spell great news for Scottish homebuyers as it means buying a property could be about to get a lot cheaper.
Progressive plans
Under the new plans the Scottish Government has indicated that those buying a property for under £300,000 will pay less than they do under the current system, while those purchasing a property for over £300,000 will likely pay more.
Part of this plan is a proposal to raise the current tax-free threshold of £125,000 to £180,000. This change could lift many Scottish homebuyers out of having to pay tax on a property sale altogether, as according to the Registers of Scotland the average property price for the country was £148,174 in the first three months of 2013.
What’s even better is that the LBTT will be a progressive tax rather than a slab tax. This means that only the amount above the threshold will incur tax at the higher rate, rather than the whole lot, as is the current system under UK SDLT.
The UK stamp duty system
The UK Stamp Duty Land Tax is a charge a buyer has to pay when they purchase land or a property in the UK. The tax levied from a sale is calculated using a percentage of the whole purchase price. The current rates and thresholds are set out below.
|
Purchase price of property |
UK Stamp Duty Land Tax Rate |
|
£0 - £125,000 |
0% |
|
£125,001 - £250,000 |
1% |
|
£250,001 - £500,000 |
3% |
|
£500,001 - £1 million |
4% |
|
Over £1 million - £2 million |
5% |
|
Over £2 million (individuals) |
7% |
Source: HMRC
Many feel the current system is unfair as just a penny’s difference in purchase price could mean you pay thousands of pounds more in tax.
A property costing £250,000 for example will attract a 1% Stamp Duty charge, totalling £2,500. But pay just one pence more on the price of the property at £250,000.01 and you will have to pay a 3% levy on the whole amount, landing you with a bill for £7,500. That’s £5,000 extra for spending one penny more.
The Scottish Government wants to make its version of the tax fairer and more reflective of a property’s value.
What the Scottish system might look like
The new Scottish rates and thresholds have not been set and are unlikely to be confirmed until September 2014 at the earliest.
However, the Scottish Government has put together an example of how the new progressive system might work. Here it is in comparison with the current UK system:
|
Property price |
Tax under current UK system |
Tax under proposed Scottish system |
|
£125,001 |
£1,250 |
£0 |
|
£150,000 |
£1,500 |
£0 |
|
£180,000 |
£1,800 |
£0 |
|
£190,000 |
£1,900 |
£750 |
|
£200,000 |
£2,000 |
£1,500 |
|
£250,001 |
£7,500 |
£5,250 |
|
£300,000 |
£9,000 |
£9,000 |
|
£350,000 |
£10,500 |
£12,750 |
|
£400,000 |
£12,000 |
£16,500 |
|
£450,000 |
£13,500 |
£20,250 |
|
£500,001 |
£20,000 |
£24,000 |
|
£550,000 |
£22,000 |
£27,750 |
|
£600,000 |
£24,000 |
£31,500 |
|
£650,000 |
£26,000 |
£35,250 |
|
£700,000 |
£28,000 |
£39,000 |
|
£800,000 |
£32,000 |
£46,500 |
|
£900,000 |
£36,000 |
£54,000 |
|
£1,000,001 |
£50,000 |
£61,500 |
|
£1,250,000 |
£62,500 |
£80,250 |
|
£1,500,000 |
£75,000 |
£99,000 |
|
£1,750,000 |
£87,500 |
£124,000 |
|
£2,000,001 |
£140,000 |
£149,000 |
|
£2,500,001 |
£175,000 |
£199,000 |
Source: Scottish Government consultation paper 2012
Under the current system SDLT is collected on behalf of HMRC by Registers of Scotland. But under the new scheme a new body called Revenue Scotland will be set up to help collect the income.
Why does Scotland get to be different?
Last year the Scotland Act 2012 granted the Scottish Parliament new powers to set and collect two devolved taxes: the Land Tax and the Landfill Tax.
The modest new powers are seen as the first steps to greater financial self-determination for Scotland.
Finance Secretary, John Swinney described Scotland’s plan for its new devolved powers as an innovative approach to taxation that is "much better aligned with the Scottish market, with Scots law and practices".
He also said it was a “significant improvement on the tax it replaces”.
We won’t know for sure how beneficial the new system will be until September 2014, coincidentally the same time the Scottish referendum on independence takes place.
More on tax:
How to cut your Inheritance Tax bill
Tax codes: how to check you're on the right one
How the Government spent your money last year
Useless public spending costs £4,500 per household
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