January 2016 – Second Homes & Land and Buildings Transaction Tax

Stamp Duty Land Tax used to apply across the UK in relation to “land transactions”. But, for Scotland, with effect from 1st April 2015, this was replaced by Land and Buildings Transaction Tax (“LBTT”) under the Land and Buildings Transaction Tax (Scotland) Act 2013 (“the 2013 Act”). The 2013 Act provides for the rules and structure of LBTT and imposes tax on anyone buying, leasing or taking other rights (such as an option to buy) over land and property in Scotland. (A bit more is said about this change in Bullet Point Update 4 of 2013.)

In November 2015 George Osborne announced a supplementary Stamp Duty Land Tax charge in the rest of the UK of 3% in cases where someone bought a second home. The Scottish Government has followed that lead. The stated policy objective of the Scottish Government in replicating the UK Government’s proposal is to:

“ameliorate the likely distortions which will arise in Scotland when new [Stamp Duty Land Tax] higher rates for the purchase of additional residential properties are introduced in the rest of the UK from 1st April 2016. The absence of a similar LBTT supplement could make it more attractive to invest in buy-to-let properties and second homes (and in particular those properties at the lower end of the market) in Scotland compared to other parts of the UK, making it difficult for first time buyers in Scotland to purchase a main residence.”

Accordingly, the Land and Buildings Transaction Tax (Amendment)(Scotland) Bill was introduced to the Scottish Parliament at the end of this month. It is expected to come into effect on 1st April 2016. The following table, showing the effect of the supplement on second homes, largely replicates that in the Scottish Government’s Policy Memorandum produced in connection with the Bill: