Scotland's Prime Property Market

Scotland's Prime Residential Market
 
LBTT impact

8 September 2017, by Faisal Choudhry

The market above £750,000 is struggling to adjust to LBTT, which is heavily reliant on the top end of the market and sales in Edinburgh. Future Government targets will not be achieved unless there is a significant change in rates

 

The biggest impact of LBTT has been felt above £750,000, where the number of residential transactions is 7% lower than the level during the year ending June 2014, when the previous structure was in force. The market above £1 million, which had briefly adjusted to the higher rates, is also seeing relatively lower levels of activity this year.

Revenue generated

LBTT did not perform in its first tax year 2015-16, generating residential revenues of £202 million, against a target of £235 million. However, the start of the Additional Dwelling Supplement (ADS) in April 2016 has boosted revenues, generating £85 million of the total £299 million in the tax year 2016-17. This was £19 million short of the £318 million target. Without ADS, the basic LBTT revenue in 2016-17 was actually lower than the previous structure in 2013-14. So far in the current tax year 2017-18, LBTT has generated almost £94 million in revenue in three months, with an annual target of £283 million.

The future of LBTT

The sustainability of LBTT revenue under its current structure depends on the market above £325,000 and Edinburgh City. The tax yielded from transactions above £325,000 totalled 72% of LBTT revenue (excluding ADS) over the past 12 months. Edinburgh City alone generated 37% of this revenue; so clearly, LBTT needs a growing Edinburgh residential market to underpin revenues. Our research shows a slowdown in transactions and fewer properties being launched onto the market in Edinburgh, upon which LBTT is reliant.

The Scottish Government has set itself ambitious LBTT residential targets, ranging from £310 million in 2018-19 to £362 million in 2021-22. Such levels are unlikely to be achieved unless there is a change in rates that can stimulate the lucrative market above £750,000 and also maximise revenue from the wider market.

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