The incentive for Scottish home buyers to delay their entry date to April next year with the aim of benefitting from lower taxes when the new Land & Building Transactions Tax came in to force all but evaporated last night as the Chancellor changed the rules around Stamp Duty.
At the same time, the incentive for buyers of more expensive properties to agree an entry date before the new Land & Buildings Transaction tax (LBTT) comes in to effect has greatly increased.
Until the changes announced last night, every buyer of a property in Scotland below £325,000 would have paid less tax under the new LBTT than they would have done in Stamp Duty. But the introduction overnight of a progressive version of Stamp Duty means that any savings for buyers below £250,000 will be minimal (about £200). Both the new version of Stamp Duty and the LBTT have a rate of 2% tax up to sales over £250,000. The only difference is that Stamp Duty is paid on the purchase price above £125,000 and LBTT is paid on the price above £135,000.
But if buyers below the £250,000 threshold will see little difference in tax paid now or from April (when the LBTT comes in to force), buyers above £250,000 will find it much more attractive to buy before LBTT comes in to effect. While LBTT applies a tax of 10% on the purchase price above £250,000, the equivalent Stamp Duty rate is half that – 5%. That means that anyone buying a property for more than £253,000 will pay less tax under the new Stamp Duty regime than they will when LBTT comes in to effect.
And the difference in tax paid could be significant. Anyone buying a property for £350,000 will pay almost £5,000 more in tax from April 5th next year than they will if they bought the property now – see graph.
LBTT was always going to be more costly for buyers of more expensive houses than the Stamp Duty it will replace (you can see what the difference in tax between LBTT and the previous Stamp Duty rates would have been here). But the difference now is even more marked than it was and is true for properties lower down the value scale – widening the number of people who could benefit from moving in earlier and increasing the amount saved by buying before the new tax year in April 2015.