Level the tax playing field to unlock growth potential

The latest data for land and buildings transaction tax (LBTT) show that, once again, the Scottish homebuyer is contributing substantial sums to the government. In the latest 12-month period £717.2m was raised from LBTT, which is a 17.3 per cent increase year on year and represents a daily tax take of £1,964,931.

By any standards this is a substantial sum of money and considerably more than our neighbours south of the Border have to pay. But looking at the figures in more detail you discover that an increasingly large part of this tax is paid by a specific group of people.

The Additional Dwelling Supplement (ADS) is generally paid by those who are property investors, landlords and second homeowners. This was raised last year from 6 per cent to 8 per cent over and above the LBTT charges which means that those paying ADS on a property worth more than £325,001 will be taxed 18 per cent on top for the privilege.

The additional Dwelling Supplement raised £222.3m between September 2024 and August 2025, which is 31.9 per cent of the total raised and a whopping £59.4m higher than the previous 12-month period.

I am grateful to a reader of this column who described ADS as “an iniquitous tax” and pointed out that it is also charged to those who purchase a home before selling their existing property. ADS will be charged on the sale and, whilst they will likely get this refunded when they sell their existing property, results in a substantial sum added to the purchase price.

For example, a £500,000 property which is not your first home is liable for £63,350 of tax if ADS is applied to the purchase. Most people required to pay such a substantial sum on top of the purchase price would struggle to raise the funds even if they did get it back at some point in the future. The comparable cost in England would be £40,000.

Someone buying a property at this price is by no means rich, but they are being charged a substantial additional sum. Indeed, almost all the residential taxes raised are from properties sold for more than £325,001. The 19,760 transactions above this threshold collected £410.8m, which is 83.0 per cent of the total £494.9m raised in LBTT (this is the figure for residential sales with the ADS figures removed). This means that the average tax levied per transaction was £20,789. It is questionable whether this is a sustainable, or even workable, means of raising revenue.

But these figures also highlight how enthusiastic many property investors and landlords are to buy in Scotland. These figures indicate serious investment interest despite the additional taxation. Imagine the possibilities were the tax position to ease substantially and be level with our English counterparts?

Scotland undoubtedly remains a key location for property investors who see the buoyancy of the market, the high demand, and the potential for growth in the future. If the tax position were more relaxed and equivalent to the rest of the UK, then this would be a market with major growth potential in the future. Until then we must rely on the continued generosity of property investors and landlords to financially support the Scottish market by agreeing to pay these not insubstantial sums of taxation.