Replicating the chancellor’s plans to cut stamp duty could result in more than 90 per cent of Scottish house sales being tax free but could drastically cut Land and Buildings Transaction Tax (LBTT) receipts, the Chartered Institute of Taxation (CIOT) has suggested.
Rishi Sunak has announced plans for a stamp duty cut in England until the end of March 2021. It will see all house sales benefit from an extension of the nil rate band to £500,000.
If the change was introduced in Scotland, someone buying a house at the average Scottish house price of £179,541 would expect to save £690 in LBTT1.
In Scotland, property tax is devolved, meaning the change will not apply unless Scottish Ministers decide to follow suit.
A cut in LBTT would lower the amount of tax that is collected by the Scottish Government. Conversely, if the UK Government raises less stamp duty than originally forecast, this could increase the amount of money available to Holyrood as a result of lower block grant adjustments2.
Joanne Walker, CIOT Scottish Technical Officer, said:
“If the Scottish Government increased the threshold for LBTT to £500,000 it would have the effect of taking the vast majority of currently taxable house sales in Scotland out of LBTT altogether, resulting in a significant reduction in LBTT receipts.
“In a normal year, around 45 per cent of house sales in Scotland aren’t liable for LBTT. Increasing the threshold to £500,000 would double this by taking over 90 per cent of house sales out of LBTT altogether.
“We would also see a proportion of the 9 per cent or so of transactions worth between £325,001 and £750,000 being taken out of the 10 per cent LBTT rate. Those types of sales alone contributed around 55 per cent of all residential LBTT that was paid in Scotland in 2019/20 and represent a significant proportion of all LBTT paid3.
“Based on the most recent Registers of Scotland data on the average house price in Scotland, a sale of this kind would generate a LBTT liability of £690.
“It is uncertain who would gain from a change of this kind. A 2011 UK government study found that a previous cut to help first-time buyers was mostly absorbed in a higher house price, benefiting sellers rather than purchasers4”.
Notes for editors
1. The most recent Registers of Scotland statistics (to March 2020) show that the average house price across Scotland at the end of Q4 2019-2020 was £179,541. See https://www.ros.gov.uk/data-and-statistics/house-price-statistics.
2. It is our understanding that the Block Grant Adjustment is used to deduct from the block grant revenues that have been foregone by the UK Government as a result of tax devolution. They are based initially on forecasts and revised once the final (outturn) data is known.
3. The CIOT looked at the tax liabilities (excluding ADS) for residential property transactions in Scotland covering the period April 2019 to March 2020. The relevant figures are shown in the table below and can be found here https://www.revenue.scot/about-us/publications/statistics/datasets.
‘All’ LBTT paid refers to both residential and non-residential Land and Buildings Transaction Tax.
4. See Government research casts doubt on effectiveness of stamp duty cut for a link to the report in question (CIOT press release – 22 November 2017)
5. The Chartered Institute of Taxation
The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.
The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.
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