Buyers and sellers of homes in Scotland are rushing to close deals before the first new tax in 300 years imposed by a government in Edinburgh takes force in April.
The regional parliament approved the tax on property transactions using powers granted to it by the U.K. prior to Scotland’s failed bid for independence in September. The levy hits buyers of expensive homes the hardest, while sparing Scots purchasing the cheapest housing.
“I’ve already had phone calls from people wanting to accelerate the process to make sure that their property is sold prior to April,” Edward Douglas-Home, a partner at Knight Frank LLP’s Edinburgh office, said on Oct. 10, the day after the rates were announced.
The nationalist government’s plan, designed to reduce inequality, replaces a U.K. duty that Scotland’s finance secretary called “unfair.” The Scottish law will boost taxes by an average 56 percent for buyers, according to a calculation by realtor Savills Plc. The higher costs, in combination with U.K. mortgage restrictions, threaten to hobble the housing recovery in Scotland, where price gains have slowed this year.
“The cost of transacting property is going to go up in Scotland and all else being equal, you’d expect that to dampen the market and lead to less liquidity,” said Ed Stansfield, chief property economist at Capital Economics in London, who has worked as adviser to the U.K. Treasury.
Finance Secretary John Swinney said on Oct. 9 that the Land and Buildings Transaction Tax, which takes effect April 1, will help 49,000 buyers at the lower end of the market. Purchasers of homes costing 135,000 pounds ($218,000) or less will incur no tax at all.
The rates for Scots paying the levy apply to the portion of the home’s value that falls within different bands: A 2 percent rate on values up to 250,000 pounds; 10 percent up to 1 million pounds, and 12 percent on homes worth more than that.
Swinney announced the rates as part of his budget for the next financial year. While the tax law was passed last year, the bands are still subject to approval by parliament, where the Scottish National Party controls the majority.
The current U.K. Stamp Duty is a “slab” tax, in which a single rate applies to the entire home price. It starts at 1 percent for houses between 125,000 pounds and 250,000 pounds, rising to a maximum 7 percent on properties worth more than 2 million pounds.