Millionaires’ Row reels as new tax bites

SALES of Scotland’s biggest homes have collapsed after a huge rise in the amount of tax buyers must pay.

New research has revealed the number of £1 million-plus homes sold north of the Border has almost halved since the SNP introduced a heavy new property tax last April.

Buyers are staying away because they can pay less tax on big homes if they buy in England and Wales.

A £1 million property attracts a £78,350 up-front tax bill under the Scottish Government’s new Land and Buildings Transaction Tax (LBTT), which replaced stamp duty last year. This rises to £198,350 for a £2 million property.

Now sales of £1 million-plus homes have plummeted by 41 per cent since the new tariff came into force.

And the tax has raised much less from residential sales than expected, leaving the Government facing a shortfall of around £40 million.

A new report by property firm Knight Frank finds ‘a lack of urgency among buyers in the prime market, which continues to be constrained by the Land and Buildings Transaction Tax’.

It says: ‘Buyers, especially those at the top end, have become more circumspect about moving, resulting in an impasse in the country house market as it adjusts to the new regime.’

LBTT is the first tax to have been controlled by the Scottish parliament and Finance Secretary John Swinney has said the ‘progressive’ system adopted will be copied with other taxes devolved to Holyrood.

When he introduced LBTT, Mr Swinney made it more expensive to buy homes costing more than £325,000, while taking those paying less than £145,000 out of tax altogether. Buyers of property up to £250,000 pay 2 per cent in tax, rising to 5 per cent between £250,000 and £325,000, 10 per cent up to £750,000 and an eye-watering 12 per cent on anything higher.

The new figures reveal there were 68 sales of £1 million-plus homes in the nine months from LBTT being introduced last April, which is 41 per cent lower than the 116 sales in the same period a year earlier.

Mr Swinney estimated the new tax would bring in £235 million from residential sales in its first year. However, new figures show that revenues are now set to fall around £40 million short.

Critics say the statistics prove that hiking taxes damages investment – and can actually reduce the amount of income raised.

But the SNP insists that, when commercial sales are included, the new tax will raise more than originally predicted in its first year.

Scottish Tory leader Ruth Davidson said: ‘If you make a virtue of making Scotland uncompetitive then you will damage your opportunity to improve public services. LBTT is a really clear example of that.’

She said that when the SNP changed over to the new tax, it claimed nobody would notice. ‘What happened? There’s a £30 millionplus black hole because it affected people’s behaviour because they didn’t move house as much.’

New figures published by the Scottish Government’s tax quango Revenue Scotland show that residential sales raised £180.9 million in LBTT in the 11 months up to the end of February – £54 million behind the original target for the full year.

The highest amount raised in one month was £21.4 million last August – meaning it is inevitable total tax from residential sales will be tens of millions short when full-year figures are published later this month.

Last night, an SNP spokesman said the new tax was fairer than stamp duty and had been a great success, already raising more than half a billion pounds from residential and commercial sales, beating the £498 million estimated total for the two.