Property tax fiasco set to blow hole in Scots budget

A CONTROVERSIAL property tax is set to blow a massive black hole in Scotland’s budget, experts have warned.

Official forecasts had predicted the SNP’s Land and Buildings Transaction Tax (LBTT) would raise £305million this year, but the latest figures show that this target is likely to be missed.

It follows a downturn in the sale of homes valued at £325,000 and over – with fears the stamp duty replacement is damaging Scotland’s property market.

The forecast, set out in last year’s budget, relies on a £45million, or 17 per cent increase, in residential revenues on last year.

But the Scottish Property Federation (SPF) yesterday published analysis revealing that between April and July this year, revenues from home sales were down £1.8million, or 2 per cent, on the same period last year.

Director David Melhuish said that the Scottish Government is ‘heavily dependent’ on the sale of family homes and higher-end properties to reach targets. He claimed a slowdown in the sale of homes priced over £325,000 had led to a drop in revenues.

This follows the introduction of LBTT, which experts have repeatAdditional edly warned is causing a bottleneck in Scotland’s property market – with people choosing to renovate their homes rather than seek larger properties.

Mr Melhuish said: ‘There is pressure on the £325,000-plus section of the market, according to the figures for this tax year so far – yet the Government’s LBTT targets are heavily dependent on the success of this market segment.

‘Increased revenues from the commercial property and the Dwelling Supplement (ADS) elements of LBTT are making up most of the shortfall, but the key sector to watch is happening with higher-value sections of the residential market.’

Mr Melhuish said that there had been a ‘marginal increase’ in the sale of homes priced below £325,000 but that the majority were less than £145,000, meaning that LBTT was not payable.

Scottish Conservative finance spokesman Murdo Fraser said: ‘The SNP was warned about hiking LBTT and the consequences it would have for the whole housing market. Those warnings were ignored and now this analysis confirms the housing market is suffering as a result.

‘The SNP now needs to consider bringing these levies down, which could make it easier for people at the other end of the ladder to buy a property, and generate more tax receipts in the process.’

Experts have previously raised concerns over LBTT, with claims that soaring numbers of Scots were being forced to abandon their dreams of moving up the property ladder as they were being locked out by the tax.

One in five homeowners claimed they wanted to move house in the next five years – but said there were are too many barriers, including the stamp duty replacement.

A Scottish Government spokes- person said: ‘Recent data shows total LBTT revenues are growing at an annual rate of 17 per cent.

‘Over the past year, residential property sales between £325,000£750,000 and sales over £750,000 rose by 9 per cent and 18 per cent respectively.’

Earlier this year, the Chartered Institute of Taxation urged the Scottish Government to overhaul the property tax to encourage investment north of the Border.

The organisation claimed differences between the system in Scotland and elsewhere in the UK were putting off investors.

And in July, Glasgow-based estate agent MQ said many people were now choosing to extend their existing homes rather than shoulder the additional tax burden of buying a house.

‘Warnings were ignored’ ‘Housing market is suffering’