Taxing effects on the million-pound Scottish market

Barbara Armstrong doesn’t buy the LBTT excuse

At a recent lunch with property colleagues, I felt the most unwelcome person in the room.

It was largely down to expressing my views on the land and building transaction tax (LBTT): I don’t agree it’s killing the market in Scotland at the top end.

Although the increase in tax above the equivalent English level actually kicks in around £330,000, by top end I think people generally refer to the £1 million-plus market.

I haven’t formally studied economics but I can calculate the amount of tax payable on a transaction and I know the property market by observing how my clients behave.

At a purchase price of £1m, the LBTT that is liable is £78,350. No one is going to argue this isn’t a significant amount.

It’s an increase of £34,600 on what would have been due previously. However, when people view houses at £1m they tend to have flexibility and might consider properties above that price too.

Therefore the extra £34,600 isn’t likely to kill a sale at that level.

It does feel sore that the taxman gets the extra rather than the seller and that it’s not included in the potential capital gain value of the property, but that won’t cause the property to linger on the market.

I appreciate that, for some buyers, flexibility isn’t always an option and budgeting is tight.

And certainly when the LBTT was introduced, many sales didn’t go ahead unless the amount, minus the extra tax, was agreed – so a £965,400 selling price for a property priced at £1m.

Although I suspect the LBTT was sometimes used as a negotiating point to get the price down, most sellers accepted the lower offer in order for a quick sale.

But the tax has been with us since April 2015 and if prices really were deflated by it, valuations, which are only valid for three months, should have been quickly back in line with the new lower market, so the LBTT argument cannot still be used as a reason for property not selling.

Even properties priced at £2m shouldn’t stick, despite the liable LBTT being £198,350, an increase of £44,600 on what was being paid before and considerably more than comparable English sales.

Before the LBTT was introduced, there were plenty of homes that were valued at £2m but actually sold for £1.75m and that is still the case.

If I look at things from a London buyer’s point of view, prices in the UK capital can be as much as ten times more than those in Edinburgh for a similar property.

So moving from London to Edinburgh is attractive both with and without the new LBTT. It’s not a show-stopper by any means.

I read recently of the case of a country mansion described as lingering on the market, with the LBTT cited as the reason.

The truth is, in this particular case, one of my clients put in a good offer on that property; it just wasn’t accepted.

My buyer turned their attention to an English country pile instead but it was nothing to do with the LBTT in Scotland.

Then there’s the recent example of a country house that did sell for my client.

Americans, Chinese, Swedes, Londoners and Scots all crossed the threshold and roamed around the 35 acres of land. It sold. No excuses.

I do wonder if the LBTT is a little bit of a smokescreen.