The Scottish Property Federation (SPF) has warned that the Land and Building Transaction Tax (LBTT) rates that were announced today in the Scottish Budget could have an adverse affect on major commercial property investment and development transactions, and make Scotland less competitive than the rest of the UK.
LBTT will replace Stamp Duty and Land Tax in Scotland from 1 April 2015, and will introduce a progressive tax rate rather than the slab structure that currently exists.
Under the new structure, commercial property transaction consideration over £350,000 will be charged the highest tax band of 4.5 per cent. This means that a £23million office transaction, for example, would have to pay £85,000 tax more than it would under the SDLT regime in the rest of the UK, while a major shopping centre transaction for £48million might pay some £230,000 more in tax. The SPF predicted that there is likely to be a value impact for major commercial property assets in the near term.
The residential thresholds, which will be 10 per cent for properties over £250,000 and 12 per cent for properties worth over £1million, are likely to hit Aberdeen and Edinburgh hardest, due to both cities having higher than average house prices. First time buyers are likely to benefit as no tax will be levied for the first £135,000 of a property. However, the impact on development appraisal is likely to be negative owing to the increased commercial higher value rates of LBTT.
David Melhuish, Director at the Scottish Property Federation, commented: “Although the Finance Secretary may be right to say that 95% of individual commercial property purchasers will pay no more than before, the problem is that the majority of commercial property sales by bulk market value are for more than £2million by individuality - and these investors can choose where they wish to invest. It is at this level that the government receives the bulk of its revenue and we do not wish to be seen to be less competitive or attractive than other parts of the UK to retain the investment of these purchasers.
“The property markets in Scotland have improved over the last year but we are concerned that the higher rates proposed for LBTT are too penal, and that this may have a negative impact on future growth in the property markets and potentially for future development investment as a whole. If Scotland is to thrive in a competitive property investment market, we do not want to risk being seen as a high tax environment, as this could dent investor confidence due to fears about further future tax increases.”