Scotland’s tax reliefs and rent control end could boost PRS investment

Scotland’s tax incentives and the imminent removal of rent caps could trigger a big boost in private rented sector (PRS) funding, one property expert says.

David Alexander is the chief executive of the agency DJ Alexander, and he says the decision to scrap rent restrictions next month might unleash a wave of pent-up investor enthusiasm.

And that could, potentially, drive a big rise in PRS commitments this year.

While there are stalled build-to-rent projects which could be revived, investors could benefit from Scotland’s tax benefits.

These are not available in England or Northern Ireland, and they could lure landlord investors.

The ending of rent controls

Mr Alexander said: “With the ending of rent controls this may be the ideal chance for many who have held back from investing in the sector to jump into a market which is experiencing unprecedented demand.

“These tax reliefs could, therefore, provide an ideal opportunity for the PRS to grow rapidly in Scotland to service the needs of thousands of tenants currently unable to find suitable properties.”

He added: “These reliefs provide a welcome support for the private rented sector and for landlords and property investors.

“There is an urgent and immediate need to provide thousands more homes in the PRS and, given the ending of rent controls almost immediately, these reliefs provide financial support to encourage property purchases quickly and efficiently.”

Mechanisms for boosting the PRS

The key mechanisms for boosting the PRS include multiple dwellings relief (MDR), applicable when purchasing two or more homes in one go or through connected deals.

There’s also the Additional Dwelling Supplement (ADS), typically levied at 8% but waived for transactions involving six or more properties.

MDR ensures landlords avoid paying excessive Land and Buildings Transaction Tax (LBTT) by aligning tax rates with what would apply if homes were acquired individually, offering a partial shield from LBTT.

This benefit extends to most deals involving several residential units, even when mixed with non-residential assets.

For purchases subject to ADS, MDR can still apply.

It also benefits buyers snapping up six or more homes in one transaction, which are exempt from ADS and classified as non-residential.

Greater opportunity for landlords

Mr Alexander said: “With the combination of MDR and purchases of six or more properties eliminating ADS this offers a greater opportunity for landlords and investors to buy into the PRS in Scotland.

“It is to be hoped that these more favourable circumstances will ensure that investors see Scotland as a potentially profitable and viable investment opportunity, and that it encourages them to enter the market at scale in the coming year.

“This provides landlords and investors the chance to come into a market with unprecedented demand at all levels enabling them to buy anything from two homes to multiple properties which should ensure that demand can start to be met in a relatively short time.”