Lows have a dedicated property team based at our Property Shop at 5 Broad Street, Kirkwall.
Our core business is in residential property sales, but we also assist clients in buying and selling commercial and agricultural property, and we have extensive experience in leasing.
On 1st April 2016 the Scottish Government intends to apply a new, additional rate of Land and Buildings Transaction Tax (“LBTT”) on second homes and buy-to-let properties. At the time this note was prepared (15th February 2016), the Scottish Parliament had still to finalise the necessary legislation but that is expected to be a formality and Solicitors and their clients will have to prepare for the new tax regime and identify where significant (and completely legitimate) tax savings can be made by ensuring that purchase transactions settle (complete) by 31st March 2016. Where transactions settle after 1st April 2016, an additional LBTT surcharge of 3% will apply on purchases of second homes and buy-to-let properties.
Transactions under £40,000 are wholly exempt but for all transactions above this threshold the additional tax is levied at a flat 3% on the entire purchase price. This would mean, for example, a property costing £60,000 would generate a tax charge of £1,800. Once the general LBTT threshold of £145,000 is exceeded, the 3% tax is added to the main rate of LBTT which would be charged. This means that for transactions between £145,000 to £250,000 the effective rate is 5% and at the top rate for transactions over £750,000, the rate becomes 15%. The additional tax will apply where at the end of the effective date of a transaction (which in most cases will be the date when the keys change hands for the price) the buyer owns more than one dwelling and the buyer is not replacing their only or main residence. If the buyer is not a legal individual (for example, a partnership or a limited company), the additional tax will still be levied. In order to minimise the scope for avoidance, Revenue Scotland has stated that the additional rates will also apply where a spouse, civil partner or close relative purchases property.
The average price of a house in Scotland is currently just over £165,000. It has been calculated that at this price the tax previously payable of £400 will rise instead to £5,350.
In limited circumstances, Revenue Scotland may make a refund of additional LBTT previously paid. One example is where the buyer purchases new property as their main residence but have not been able to sell their existing main residence. Once the “old” property sells (provided this is within 18 months) the buyer can then apply for a refund.
The tax does not apply to non-residential property. It does, however, apply to both new-build and second-hand residential property.
There is no doubt that the additional tax is being levied not only as a revenue raising measure, but also to act as a deterrent against excessive property prices being fuelled by buy-to-let purchasers. It comes alongside moves announced in the Autumn Statement of December 2015 which will remove certain tax benefits which buy-to-let owners have previously enjoyed. It is too early to say with any certainty what will happen to the market after 1st April 2016. It is likely that against a backdrop of stock market volatility and uncertainty about the global economy, many investors will still see second homes and/or buy-to-let properties as a sound long-term investment. It is entirely possible that in the short-term, purchasers will seek to negotiate on price so that the seller will, in effect, bear part of the burden of the additional tax even though in strict legal terms the obligation to pay the tax rests solely with the purchaser.
In Scotland Solicitors have long been recognised as the leading profession in property. Lows are the recognised market leaders in Orkney property, consistently marketing more properties in Orkney than any competitor.
We believe in an innovative and client driven approach to property sales and marketing. We were one of the first law practices in Scotland to have a dedicated property website, and sellers and purchasers can both now benefit from access to Rightmove, the UK’s No. 1 property portal.
On our website you can browse details of all properties for sale, download particulars and request a viewing. If you are thinking of moving to Orkney and need information about our community and its schools, medical resources and transportation links then our highly knowledgeable team will be happy to help.
Our independent financial adviser Robert Adamson offers advice on the full range of mortgage products to prospective purchasers.