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Property sales tax is the gift that keeps on giving for Scottish Government - David Alexander

David J Alexander
David Alexander warnss the impact of LBTT and higher personal taxation is likely to have a long-term negative impact on the Scottish economy

The generosity of the Scottish house buying public remains extraordinary. The latest data on the Land and Buildings Transaction Tax (LBTT) shows homeowners contributed a total of £639.8m in property taxes in the 12 months to July 2024.

This is £17.7m higher than the previous 12 months in 2022/23 when £622.1m was raised. The figure for July was £75.9m which is £18.7m higher than June and the largest monthly figure recorded since data began being collected in April 2015.

Of the £639.8m taxes raised, £197.3m is from the additional dwelling supplement (ADS) which is charged on second homes and properties purchased by landlords and property investors to rent. This is 30.8 per cent of the total raised and is £33.8m higher than the same period in 2022/23. The ADS figure for July alone was £23.9m, which is the highest ever monthly figure.

Almost all the residential taxes raised arose from properties sold for more than £325,001. The 16,960 transactions above this threshold raised £367.6m which is 83.1 per cent of the total £442.5m 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 £21,674.

The Scottish homebuyer is now generously contributing almost two-thirds of a billion pounds in property taxes annually. This is an unbelievable amount of money. The 10 per cent property tax begins at £325,001 in Scotland compared to £925,001 in England, resulting in Scots being charged substantially more for lower priced homes than our English counterparts.

Yet a property valued at £325,000 is not even the average price of a home in some parts of Scotland. The average price of new builds is considerably higher than this level with East Lothian, Edinburgh, and East Renfrewshire all £100,000 above the £325,000 threshold.

Combine this with higher personal taxes beginning at annual earnings of £28,000 and you see a picture of a population being taxed at a much lower starting point than our neighbours south of the Border. The usual explanation is that those with the broadest shoulders should pay the greatest amount but clearly these taxes are targeting many Scots who would not regard themselves as rich.

Scots earning a £28,000 annual income are unlikely to believe they have the broadest shoulders. This is the income of plumbers, chefs, sales managers, senior drivers, and administrators. An even higher tax band impacts upon nurses, teachers, and police officers.

Yet despite these greater taxes the Scottish property market remains as resilient and as buoyant as ever. Ultimately, the long-term outlook may not be so positive but in the short term the Scottish property market remains very lively. In particular the top end of the market is extremely strong.

Quite what the long-term impact on the Scottish economy of much higher taxes on homes and employment will be can only be determined if higher taxes begin to contribute to the idea that Scotland is an expensive to live and work. If these levels of taxation begin to deter individuals and companies from future investment in Scotland, then far from being progressive taxation it will be regressive. However, until that point occurs LBTT seems to be the gift that keeps on giving for the Scottish Government.

David J Alexander is CEO of DJ Alexander Scotland Ltd

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