Posted: Thursday 28 June 2012
Earlier this month, the Scottish government announced its intention to change stamp duty on home purchases from a percentage tax to a progressive tax. The announcement forms part of a wider program of tax reforms, brought about by the Scotland Act 2012, which gives Holyrood a wider range of tax and borrowing-related powers.
Stamp duty is currently charged on properties with selling prices over £125,000, at rates of between 1% and 15% depending on the value. Until the end of the last tax year, there were more extensive stamp duty relief measures for first-time buyers, but this scheme has now ended.
The new proposals, as they currently stand, would potentially see stamp duty removed from all purchases under £180,000, and, according to John Swinney would benefit up to 95% of the property market. The changes would likely be accompanied by higher taxes on the most expensive properties, and tough anti-avoidance measures.
The current system works on a block basis: once an offer breaks a tax band threshold the purchaser pays the higher percentage in taxed based on the full price, not just the amount over the threshold.
This distorts the market as purchasers are understandably very reluctant to go above a stamp duty threshold, so many properties do not fulfil their true potential, and offers tend to “bunch” just below the upper threshold.
By way of an example, if a property sells for £249,900 then it is taxed at 1% (£2499), but if it goes for £250,900 it is taxed at 3% (£7527) – an increase in tax of £5000 for an increase in price of only £1000!
The information on the new tax is extremely limited at present, but it would be hoped that it will be fairer, create a smoother market and provide sellers with a level playing field.
While these reforms could herald some major changes in the Scottish residential property market, and potentially benefit many home owners, they are still theoretical – and if they do happen, quite a while off. The Scottish government’s new powers to control stamp duty do not come into effect until April 2015, so anyone planning to buy a home in the near future will remain unaffected.
For first-time buyers saving hard for a deposit, or those expecting to move up the property ladder as, for example, their family grows though, this could be intriguing news.