Tax blamed for fall in £1m house sales

● Purchasers put off by ‘unfair’ levy ● Knock-on effect hits first-timer buyers

Scotland’s million pound property market has stalled because of “punitive” rates of land and buildings transaction tax, experts have warned.

A new analysis from estate agent Savills shows that only 56 transactions took place in the first half of 2017 compared to 79 during the same six-month period last year. Property professionals have urged ministers to consider the impact of the tax.

“Punitive” rates of land and buildings transaction tax (LBTT) are curtailing the million pound market in Scotland, property experts have warned.

Only 56 transactions have taken place in the first half of 2017, compared to 79 during the same six-month period last year, according to an analysis from estate agent Savills. While Edinburgh remains the hub of the million pound market, sales of high-end homes are spreading more evenly throughout the country, the study found, especially in the west of Scotland.

A separate study found that one in five potential homebuyers across the market has cited the tax as a reason for their decision not to move in the past two years, with two thirds branding it “unfair”. The tax, introduced by the Scottish Government in April 2015, can see an extra £45,000 added to the cost of a £1m home if the property is bought in Scotland rather than England. Property professionals warned in advance of its introduction that it could impact the higher end of the market and the Scottish Government is coming under increasing pressure to reconsider the measure.

Ken Mcewan, chief executive of estate agent Mcewan Fraser, said that in light of the survey findings the Scottish Government should consider carefully the detrimental impact the tax is having on the housing market and on reduced tax receipts. The Scottish Property Federation (SPF) has calculated that revenues generated by the LBTT in the past year are £57 million down on Scottish Government forecasts because of fewer sales.

“If stagnation happens at any part of the housing market, it has a knock on effect all the way back to first-time buyer properties – precisely those the tax was intended to help,” Mr Mcewan said.

The Savills report revealed that Edinburgh has seen a drop in million-pound plus transactions over the first half of this year, with 33 in the first six months of 2017 compared to 45 last year.

However, greater Glasgow’s million pound market has had a stronger 12 months, with 28 annual transactions taking place during the year ending June 2017 compared to 20 during the year ending June 2016.

A Scottish Government spokesman said: “The official data clearly shows that property sales in the highest tax brackets are maintaining their share of overall property transactions.”

When John Swinney introduced the Scottish Government’s land and buildings transaction tax (LBTT) more than two years ago, it was widely predicted to result in a slowdown in the country’s property market.

Today those warnings no longer apply. The effects are clear and have been happening for some time.

And new finance secretary Derek Mackay must act.

The latest report – from estate agent Savills – has found that “punitive” rates of tax are curtailing the market for homes over £1 million in Scotland.

Only 56 transactions have taken place in the first half of 2017, compared to 79 during the same sixmonth period last year.

A separate study found that one in five potential homebuyers across the market has cited the tax as a reason for their decision not to move in the past two years, with two thirds branding it “unfair”.

It might be tempting for some to say homeowners in the £1m market can afford to pay more tax, but this misses the point. This tax that is failing taxpayers and cash-starved public services; and reducing mobility in the labour market.

The entire housing chain is in slowdown, and we can’t just blame Brexit.

The retired who want to downsize are finding it more difficult to sell, because those with growing families cannot afford – or are unwilling to pay – the high tax rate to move up the ladder.

This in turn means there are even fewer starter homes on the market for first-time buyers.

The numbers confirm this. In its first year, LBTT came in below its forecast revenue, delivering a residential shortfall of £33m. The tax shortfall after year two is now more than £80m.

Labour market mobility is even more important issue. Businesses need skilled employees to move to where the jobs are. And this isn’t always around the corner.

But many families are put off moving again because of the higher tax. Imagine having to move three times in the space of five years for work – that’s a lot of tax. Reduced mobility means reduced productivity and again lower tax take. A re-think is required. Mr Mackay has, significantly, said he is not an “ideologue on this issue”.

The evidence for change is piling up in Bute House. Mr Swinney didn’t heed the warnings. We need action from our current finance secretary.