9:25 AM, 24th March 2023, About 11 months ago 3
Scotland has seen its income from the Land and Buildings Transaction Tax (LBTT) on residential sales collapse this year with the first two months down £44.4m.
That’s a drop of 36%, compared to the previous two months, research from property firm DJ Alexander Ltd reveals.
And now the firm is calling on the Scottish Government to reduce property taxes in a bid to bolster the housing market and help investors.
The move would also improve the tax take and help the government achieve its forecast tax revenues from house sales.
The firm also found that the largest drop in revenue was for people buying a home for themselves which led to a fall of £39.6m.
The firm says that is down 44% when compared with the last two months of 2022.
Revenue from second home buyers, landlords and property investors – who also pay a 6% premium on top of standard LBTT – fell by £5m or 15%.
Revenue from residential sales and non-residential sales was 37% down in the first two months of this year, falling from £166.8m to £104.9m.
David Alexander, the chief executive of DJ Alexander Scotland, said: “It is clear that the property boom has started to come to an end with its consequent impact on revenues for the Scottish government.
“It is highly likely that this reduction will persist throughout this year and may even fall further depending on how well the housing market holds up given the cost-of-living situation, utility costs and the continued impact of high inflation.”
He added: “It is interesting to see that second home buyers, landlords and property investors have remained more active purchasers than homebuyers.
“They contribute more per purchase than anyone else given the additional 6% Additional Dwelling Supplement (ADS) applied to these buyers.
“And it will be interesting to see if the recent hike in tax in the Scottish budget negatively impacts activity in this market.”
Mr Alexander continued: “Of course, these figures could simply be a seasonal blip and they may also be a response to increased caution caused by recent financial uncertainty, but they could be a sign of a greater shift in the market.
“If this represented a more permanent fall in revenue from property taxes, then the Scottish Government will face a shortfall in its projected earnings for the coming year.”
He says that for this current financial the government will reach its target of £797m in revenue from residential and non-residential sales.
However, the government’s forecast of £821m for 2023-24; £849m for 24-25 rising to £987m by 2027-28 – double the figure for 2020-21 – may not be achieved.
Mr Alexander said: “It is clear that the Scottish government, like all governments, has long regarded the homebuyer and the property investor as a cash cow.
“But with just £50.9m raised in February – the lowest monthly figure since May 2021 – and the likelihood of a potential shortfall in revenues this coming year of around £200m, it is clear that this source of income may be drying up.
“One action which the government in Scotland could do to raise revenues would be to make house buying more attractive for the homebuyer and the investor by reducing the taxation on each sale to ease costs at a time when the market is being squeezed.
“This was introduced in England last year as a means of supporting housing while there remains a downward pressure on the market.”
He added: “If property taxes were reduced to match England rates, this policy would have a positive impact on the Scottish market.
“Contrary to the popular view reducing taxes generally increases revenue raised as it supports higher sales volumes.
“This action alone could prevent a future shortfall in revenues from property taxes for the Scottish Government in the next few years.”
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