Additional tax burden on purchase of second home

To relatively little fanfare and without much in the way of useful guidance the Scottish Government has announced that from 1 April 2016 a supplementary Land & Building Transaction Tax (LBTT) charge will apply to the purchase of additional residential properties in Scotland. Basically this means that homeowners wishing to buy a second home or buy-to-let property will face an additional tax charge of 3% of the purchase price.

All residential property purchases by companies and sole traders will be affected by the supplement regardless of whether this is a second home or not.

LBTT is currently payable on all residential property purchases over £145,000.  You will still have to pay the standard rate of LBTT on the purchase of any second home (see illustration below for current rates) but assuming that you pay £40,000 or more for your second home then you will pay an additional LBTT charge of 3% of the whole of the purchase price

The current “standard” rates and additional homes rates are outlined below:

Purchase price Existing LBTT rate

 

Additional Homes Supplement

(range of additional LBTT payable)

Up to £145,000 0% 3% (£1,200 – £4,350)
Above £145,000 to £250,000 2% 3% (£4,350 – £7,500)
Above £250,000 to £325,000 5% 3% (£7,500 – £9,750)
Above £325,000 to £750,000 10% 3% (£9,750 – £22,500)
Over £750,000 12% 3% (£22,500 – )

 

Please note that “standard” LBTT is payable at the rate given on that part of the price falling within the given price bracket (e.g. for a purchase at £275,000 “standard” LBTT is payable as follows: 2% of £105,000 (being the amount of the price between £145,000 and £250,000) plus 5% of £25,000 (being the amount of the price above £250,000).

Whilst it is not possible to go into all the detail of the new legislation within the scope of this short article we would make the following comments:

  • If you are selling your main residence but have settled the purchase of your new main residence before the sale of your existing property, the additional 3% would be payable but refundable as long as you sell your previous main residence within 18 months of the purchase of your new main residence.
  • If you purchase a new main home but decide to rent out your previous property then you will be deemed as having purchased an additional home and the 3% supplement will apply.
  • In order to prevent couples from avoiding to pay the supplement by purchasing additional properties in sole names an individual will be deemed to be the owner of a residential property where it is owned by their spouse, civil partner, cohabitant or child under 16.
  • Property investors purchasing 6 or more residential properties in one transaction will not have to pay the new 3% LBTT supplement.

If you have any queries regarding this new supplementary tax or more generally about purchasing a first or additional home please contact me, Ross Leatham, on 0141 552 3422 or by email rjl@mitchells-roberton.co.uk

This entry was posted in Legal, Uncategorized by Ross Leatham. Bookmark the permalink.

About Ross Leatham

Ross graduated from the University of Glasgow in 2004 having spent 6 months of his studies as an international student at the University of Tilburg. He commenced his traineeship with Mitchells Roberton in 2005 and has been with the firm ever since. He is an experienced solicitor dealing in the purchase and sale of both commercial and residential property, acquisition and disposal of businesses, commercial leasing and property finance. He has acted for a wide range of clients including accountants, further educational establishments, hotels, restaurants, veterinary surgeons, dentists and charities. Ross firmly believes that each client is not just a case and he always takes the time to foster a genuine engagement with his clients to best understand their needs in order to provide focused commercial advice and pragmatic solutions to their problems. Ross only wishes he could find as an effective solution to enhance the performance of his beloved hockey team, East Kilbride. Ross is married.

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