Scottish Stamp Duty reform will clobber many buyers, warning

So, the good news is that Scotland is getting ready to ditch Stamp Duty and introduce a more ‘progressive’ tax.

Westminster is undoubtedly watching, but before everyone urges it to follow suit, here is the bad news.

For many buyers in Scotland, the new Land & Building Transaction Tax will mean they pay MORE than now.

The devil as always being in the detail, the Scottish Government says it will not be setting rates and thresholds until nearer the time – April 2015.

However, the Government has come out with two likely scenarios.

Both favour buyers of cheap properties by taking more properties out of the tax system altogether, but do that thing with squeaking pips for dearer properties.

At the moment, someone buying a property at £125,000 in Scotland pays £1,250 Stamp Duty. Under both proposed options, they would pay nothing in future.

Someone buying a £180,000 property currently pays £1,800. In one option, they would pay nothing in future, and in the other £1,100.

At a purchase price of £250,000, purchasers will still be quids in, paying £7,500 at the moment, likely to be £5,250 or £2,500 in future.

At £300,000 the future saving on the current Stamp Duty bill of £9,000 is either nothing or it comes down to £7,500.

The crunch point is £500,000. At this purchase price, the current Stamp Duty bill is £20,000. Under option one, it will be £24,000, and under option two, it will be £26,250.

The next hike is much more eye-watering. A purchase price of £700,000 currently attracts Stamp Duty of £28,000, but the future bill will be either £39,000 or £42,250.

Similarly, a £1m property purchase with a current Stamp Duty bill of £50,000 will in future attract either £61,500 or £73,750. And so it goes on – the higher the property price, the more tax buyers will pay compared with now.

What do Scottish agents make of it? Of course, it depends on where they are and the type of markets they are in. But Rettie & Co says that in parts of Aberdeen and Edinburgh, ‘fairly modest’ family homes currently cost well above £300,000 – the cut-off point between paying more than now, or less.

Rettie & Co also points out that the mid to upper end of the housing market has been performing better than the mid to lower parts, which have been affected by lack of mortgage finance.

The danger, it says, is that the new tax could have a serious impact on the part of the market that is doing okay, but not do much to help that part of the market that is struggling.

“Overall,” the firm warns, “this may put another dampener on the housing market if there is not a solid recovery in transaction levels by the time changes are introduced in 2015.”

So, for all those advocates of Stamp Duty reform, it seems to be a case of – be very careful what you wish for.