The Scottish Property Federation (SPF) has warned MSPs of the dangers of increasing the commercial property higher rate of Land and Buildings Transaction Tax (LBTT) to 4.5% compared to 4% for UK Stamp Duty and Land Tax (SDLT).
Giving evidence at the Scottish Parliament's Finance Committee on LBTT rates and thresholds, SPF Chairman John Hamilton explained that making the tax too penal at the higher end of the scale could cause Scotland’s commercial property market to become less appealing to investors.
The tipping point LBTT incurring higher taxation than SDLT for commercial property is £2million. Recent figures from the Registers of Scotland show that by value some 75% of commercial transactions in the third quarter of 2014 were for values of £2million or more, representing a significant £722million out of a total value of commercial property sales of £962million in Scotland in this period.
Hamilton noted that not only will the higher rate of non-domestic LBTT be a cause of concern for commercial investors it will also impact house-builders, who purchase development sites on the basis of non-domestic rates. Hamilton added that in his own experience transactions for between £6-8million were common for house-builders and therefore the rates meant that Scotland would be less competitive than other parts of the UK. This would be a challenge for the Scottish elements of UK wide house-builders who would therefore not be competing for their company’s investments on a level playing field.
In the residential property market SPF agreed with other stakeholders, including home building industry body Homes for Scotland, that a rate needed to be inserted between the 2% and 10% rates and bands in order to provide a smoother tax rise for families seeking to move into larger and more valuable properties.
John Hamilton, Chairman of the Scottish Property Federation, added: “We welcome the progressive regime introduced by the Scottish Government. However, we feel we are missing an opportunity to make Scotland a competitive place to invest and that the Scottish Government’s proposals need some adjustment if we are to avoid any negative perceptions of LBTT by potential investors in the Scottish property market across both its residential and commercial investment sectors.”