Property and income tax adjustments outlined in the Scottish budget 2023-24

The Scottish Government has announced a devolved tax and stated that the Additional Dwelling Supplement (ADS) charge for Land and Buildings Transaction Tax (LBTT) will increase from 4% to 6%. Scotland’s equivalent of stamp duty is called LBTT. Both residential and commercial property transactions in Scotland are subject to this property tax.

In addition to the LBTT payment, the ADS is an additional cost that is associated with the majority of second-home acquisitions. This implies that you will be required to pay an additional rate of tax, the 6% ADS fee if you are purchasing a residential property while you already own a home. 

If you intend to recoup the ADS amount by selling your initial property within 18 months, you may do so. The ADS hike went into effect on December 16, 2022, according to the decision, which was made public as part of the Scottish Budget by the Scottish fiscal commission. 

John Swinney, the deputy first minister of the Scottish parliament, said: “These tax measures strive to find a balance between making sure there is enough money for public spending and reflecting the difficult economic circumstances affecting people and businesses. The primary residential and non-residential rates and categories for the Land and Buildings Transaction Tax won’t change. 

“Today, legislation will be introduced to raise much-needed additional revenue by raising the Additional Dwelling Supplement rate from 4% to 6%.” The Scottish Government claims that the rate of income tax, around £34 million generated by this ADS increase will go towards funding the NHS and other public services.

Scottish budget: What will the impact be on property and income tax payments in Scotland?

According to John Swinney, the increase in ADS has been implemented to help first-time homebuyers face fewer obstacles as they attempt to climb the housing ladder. Swinney continued, “Increasing the tax due on the purchase of additional dwellings like second homes maintains our commitment to protect housing opportunities for first-time buyers in Scotland, while also raising crucial additional revenue.”

Landlords should be aware of the taxes they will owe when they acquire a buy-to-let when they rent it out, and when they sell it so they can plan their budgets properly. The purchase price of the residential property determines how much LBTT must be paid. There are different LBTT tax rates and bands, and each band is subject to a different tax rate.

The rate and tax policy of the Scottish government is mentioned in these pointers below:

  • For a purchase price up to £145,000, your LBTT rate will be 0%. 
  • For a purchase price between £145,000 and £250,000, your LBTT rate will be 2%. 
  • For a purchase price between £250,000 and £325,00, your LBTT rate will be 5%. 
  • For a purchase price between £325,00 and £750,000, your LBTT rate will be 10%. 
  • For a purchase price over £750,000, your LBTT rate will be 12%. 

As an example, for a property purchased at £250,000, you would be liable to pay income tax rates up to £2,100 in LBTT, along with £15,000 in ADS, making it £17,100 in total.

What does it all mean for the buy-to-let market?

The increased tax on purchasing a second home will have an impact on the private renting sector, where some landlords are selling up due to rising mortgage and other costs. Clarity Simplicity can assist if you’re searching for assistance as a landlord or if you’re interested in entering the buy-to-let market. Our team is knowledgeable about what is occurring in the local market right now and has the abilities, and experience to give you the direction and support you require in trying circumstances. We have extensive knowledge of Scottish tax revenues and the tax system introduced by the Scottish government. We are the go-to place for any information about tax in Scotland! 

A wide gap between the property tax of the rest of the UK and Scottish LBTT 

In the mini-Budget on 23 September, UK government former Chancellor Kwasi Kwarteng didn’t lower stamp duty rates but the thresholds where stamp duty kicks in were changed to start at transactions of £250,000 (double the previous limit of £125,000) and the exemption for first-time buyers will rise from £300,000 to £425,000. 

In the Autumn Budget Statement on 17 November, Chancellor Jeremy Hunt of the local government announced that the stamp duty thresholds would reduce to previous limits from 31 March 2025.

Former Chancellor Kwasi Kwarteng did not reduce stamp duty rates in the mini-Budget on September 23, but he did change the thresholds at which it begins to apply, starting at transactions of £250,000 (double the previous limit of £125,000), and the first-time buyer exemption will increase from £300,000 to £425,000.

Chancellor Jeremy Hunt stated in the Autumn Budget Statement on November 17 that the stamp duty thresholds would return to their prior levels on March 31, 2025.

Expert advice for a Scottish taxpayer from Clarity Simplicity

If you require help with the Scottish income tax, our solicitors at Clarity Simplicity can help you figure out a way out! We have knowledge about the Scottish economy including the Scottish landfill tax, council tasks, and other income tax rates and bands. You can reach out to us at 0808 169 7033

Similar Posts