Property Agents Savilles Response to the Scottish Budget

16th December 2022

The lowering of the threshold at which people start paying the top rate of income tax from its current level of £150,000 to £125,140 from April next year came as no surprise in today's Scotland budget.

It was anticipated that The Scottish Government would most likely match the recently announced top tax rate threshold reduction across the rest of the UK. However, the higher rate of tax will rise from 41p to 42p in the pound and the top rate will increase from 46p to 47p. Across the rest of the UK, the higher rate tax is 40% and the equivalent top rate tax is 45%.

Yet despite higher rates of income tax since 2018 than the rest of the UK, Scotland's housing market has grown and it hasn’t deterred people moving to Scotland from south of the border, or indeed from attracting overseas buyers: since 2017, nearly a fifth of Savills buyers have moved here from outside Scotland.

Economic challenges, the rise in the cost of living and higher lending rates will undoubtedly lead to a reduction in prices and transactions in Scotland over the next 12 months in line with the trend across the rest of the UK. Yet Scottish house prices are 32% lower than the UK as a whole (according to the Nationwide data for Q3 2022), and this value gap, along with quality of life, and the global profile and economic strength of Scotland as a place to live, work and do business, anchored by Edinburgh and Glasgow, means that the market here will remain resilient, with capacity for further growth from 2024.

Land and Buildings Transaction Tax

The increase in the Land and Buildings Transaction Tax Additional Dwelling Supplement from 4% to 6% from 16 December means that buyers in Scotland will now pay double the rate compared to England and Northern Ireland and 2% more than Wales. The purchase of a £300,000 additional dwelling in Scotland will therefore incur an extra £6,000 in tax as a result.

Mortgaged Buy to Let has become less profitable for individual investors and landlords since 2016 and as a result Buy to Let’s share of outstanding mortgages across the UK has stagnated at 17-18%. Further headwinds were unveiled in the Autumn statement as Jeremy Hunt announced a reduction in Capital Gains Allowance.

At a time when there were 29% less properties listed for rent this year in Scotland compared to 2016 according to Rightmove, the increase in additional rate is likely to put more pressure on students and young professionals, especially given the challenges in purchasing a home due to the rapid rise in mortgage rates and reduced availability of mortgage products since the end of the September.

An opportunity has also been missed to raise the house price threshold above which LBTT is levied and to also increase the nil-rate threshold for First Time Buyers’ Relief. This would have provided further support to those on the first rungs of Scotland’s housing ladder, matching similar measures already enacted in the rest of the UK.

https://www.savills.co.uk/