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Housing emergency: ringfence property tax receipts to build homes - David Alexander

David J Alexander

A partial solution to our current housing emergency could find favour with a public resentful of the disparity between the tax regimes of Scotland and England, writes David Alexander.

Our latest analysis of money raised from property sales from the Land and Buildings Transaction Tax (LBTT) shows that £623.1m was charged to homebuyers in the 12 months to April 2024. This substantial amount keeps rising and highlights the heavy penalty Scots pay for buying a home here rather than in England or Wales.

With a 10 per cent charge kicking in at properties valued at over £325,001 compared to the same rate only being charged in England when houses are worth more than £925,001 the disparity could not be more marked.

This undoubtedly causes some resentment and may, at some point in the future, result in a disincentive to live in Scotland, but not at the moment. The market remains the most buoyant part of the UK, but this may not last.

But perhaps the Scottish Government is missing a trick here. What if they were to provide an explanation of why we pay more taxes in Scotland which also offered a solution which addressed our current housing emergency?

Nobody likes taxes but if there was evidence that the money was being directly invested in an area requiring immediate attention then perhaps the tax-paying public would be more amenable.

If, for example, this annual £600m-plus tax was ringfenced as additional funding and used only to build new homes for the social and affordable homes sectors then the Scottish homebuying public might see this as at least going some way toward easing the current housing emergency.

This level of funding would at least be a start in easing the enormous housing shortages, in reducing the number of Scots living in temporary accommodation and start to resolve the current difficulties the sector faces. £3 billion invested in housing over the next five years would be an enormous boost to the sector at a time of unprecedented demand.

This policy coupled with greater cooperation with the private rented sector, alongside easing of planning and more encouragement for housebuilders would be a start in tackling the current housing emergency.

This could be the beginning of resolving Scotland’s current housing issues and, while it wouldn’t be the sole answer, it could at least provide an explanation for the homebuying public of why they are being charged so much more in tax whilst also addressing the shortages of homes.

Of course, the best solution would be reducing the property tax that homebuyers pay to equalise Scotland with the rest of the UK alongside lowering personal taxes to match England. This would actually increase overall revenues as it would make the country a more attractive place to live, work, and to invest.

However, in the short term I believe that many homebuyers might be supportive of such a policy if they knew their taxes were being directly spent on housing rather than simply adding to the overall government spending pot.

There needs to be much more creativity and cooperation in the Scottish housing market if we are to resolve the current dilemma. Major housing shortages will not be fixed overnight but there must be a start, there needs to be motivation, and there must be sector-wide agreement about the way forward if this situation is to be resolved.

David Alexander is CEO of DJ Alexander Scotland Ltd

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