Andrew Diamond, Partner and Head of Residential Property has questioned the motives behind a tax rise on people buying second homes in Scotland - warning it could lead to less money being paid to the government. He believes economic interests would be better served by reversing the rise in Additional Dwelling Supplement (ADS).
The Scottish Government announced as part of its 2023-24 Budget that the additional rate of tax paid for those with more than one property was increasing from 4% to 6%. That compares to 3% in England. It argues the move will raise £34m of additional revenue with ADS “an important element of the drive to protect opportunities for first-time buyers”.
But Andrew, a lawyer with 30 years’ experience in the property industry who is also chairman of solicitors’ property collective ESPC, believes there will actually be revenue losses - with buyers already being driven away.
He said: “The question many in my sector are asking is whether this is really about raising revenues or is it about discouraging investors and second home owners?
“If it’s the latter, that’s the Scottish Government's prerogative. But I would encourage them to say so and not dress it up as a way in which to raise new revenue that might be used to support first-time buyers - because I am certain it won’t raise that revenue.
“I suspect the effect will be that the tax take for the Scottish Government actually falls because potential buyers are put off by what they have to pay. We are already seeing investors buying in England instead of Scotland because of this.
“This is bad news for the housing market and the wider economy. It makes no financial sense.”
Organisations including the Scottish Association of Landlords have also been critical of the tax rise.
Andrew says the concerns of the property sector - which he would be happy to discuss with the Scottish Government - need to be taken on-board by ministers.
He added: “If the Scottish Government ends up collecting less tax because fewer people choose to invest, it will actually reduce its revenues and financial ability to help first-time buyers - not to mention having fewer homes available for rent. Housing issues may actually worsen.”
Under the Scottish Government’s 2023-24 budget, which is still making its way through the Parliamentary process, the revised rate of ADS took effect from contracts entered into on or after December 16 2022.
ADS is added to any Land and Buildings Transaction Tax (LBTT) which may be due on a home purchase of £40,000 or more. It can apply to second homes, rental properties, holiday homes and properties used by family and friends, even if rent is not charged.
On a purchase price of £250,000, anyone liable to ADS in Scotland would pay a total in tax of £17,100 (£2,100 LBTT plus £15,000 ADS). Currently in England, the equivalent taxes payable would total £7,500.
This article featured in the Scotsman on Saturday 4 February 2023.
