On Wednesday, The Chancellor Rishi Sunak confirmed a major stamp duty cut in a bid to boost the housing market in England and Northern Ireland.
At this week’s summer economic update on Wednesday, Sunak confirmed plans to raise the stamp duty (Stamp Duty Land Tax ‘SDLT’) threshold from £125,000 to £500,000 and introduced it effective immediately but this does only apply to England and Northern Ireland – as the Scottish Government sets the Scottish equivalent, ‘Land and Buildings Transaction Tax’ (LBTT).
Kate Forbes, Scotland’s Finance Secretary, announced a change to LBTT on Thursday. The initial threshold is to be raised from £145,000 to £250,000.
The Scottish Government has stated that this will mean that residential property transactions where the purchase price is under £250,000, and to which the Additional Dwelling Supplement (ADS) does not apply, will attract no LBTT.
Where ADS is applicable, the change to the starting threshold will also apply. This means that a residential property transaction that is liable to the ADS will not pay the standard rates of LBTT on the first £250,000 of the purchase but the ADS will remain payable at 4% of the total purchase price.
The Finance Secretary also confirmed that the Scottish Government would invest an additional £50 million into the popular First Home Fund to provide additional support to first time buyers.
Once introduced, the change will remain in force until 31 March 2021.
Whilst this is of course welcome news, unfortunately the Scottish Government has confirmed that the change will not come into force immediately and this could seriously stall Scottish property market activity.
Why is Westminster and the Scottish Government introducing stamp duty holidays?
It is worth pointing out that this is a limited stamp duty holiday – not a permanent change.
Since April, there have been several calls for a stamp duty holiday across all four corners of the UK to boost the housing market as lockdown eases. This is because during lockdown, necessary physical restrictions halted property market activity. The theory is that giving buyers a tax break (by cutting the stamp duty bill and therefore the total costs of buying) will encourage more buyers to move home as well as give the economy a much needed boost.
When you move into a new home, you need to organise your finances, utilities and other elements related to your home move. The process of moving into a new home also involves many other services too such as decorating, furnishing, garden services and other home improvements. All this buying activity supports the retail sector, too, and not just housing.
The overall network effect on the economy means that the government is keen to encourage housing mobility and is looking at the bigger economic picture.
Why is it problematic that the Scottish Government have not yet confirmed a date?
We are extremely disappointed that the changes to LBTT have been announced by the Scottish Government without confirmation of a date for the change to take place. We have contacted the Scottish Government to convey our concern about this and the impact on market activity.
Whilst the move is to be welcomed alongside the increased investment towards the popular First Home Fund, the lack of certainty on the commencement date for the changes to LBTT and lack of further details is causing enormous concern in the Scottish property market.
Paul Hilton, CEO of ESPC, said: “Announcing the change to LBTT without a commencement date poses a significant risk to Scottish property market activity, which had been strong since restrictions were relaxed on the 29th June.
“We appreciate that there are reasons this change cannot be implemented immediately. However, in order to prevent a significant stall in market activity and protect property businesses in Scotland, we implore the Scottish Government to confirm a date and apply this change as soon as possible.”
After 3 months of lockdown, the market re-opening in Scotland last Monday 29th was causing a stir and considerable uplift in activity. It is worth noting that the English market opened on 13th May and their stamp duty holiday was introduced effective immediately yesterday.
The Scottish property market has been particularly busy the past few weeks and we are now able to progress all residential property transactions. Many transactions were put on hold due to the lockdown restrictions but the announcement – without a date – is likely to stall activity.
Without a date, purchasers will not commit to any deals and conclude missives until they have certainty on the LBTT that they will be paying.
Overall, the announcement is attractive on paper but currently counterproductive without a date.
We also need clarity on how this will impact on purchasers who have recently concluded missives and have an upcoming date of entry as the timing could be very unfair on those purchasers.
We need immediate clarity and confirmation as the Scottish Government is impacting the positive uplift in activity by delaying confirmation of the date.