Scotland scraps 'slab' stamp duty system in favour of proportional rates
Scotland is to scrap the abolute or 'slab structured' stamp duty system that exists in the rest of the UK in favour of a proportional system where tax is paid only on the portion of the purchase price that goes over each threshold, rather than the entire amount.
The Scottish Government announced its proposals for the first devolved tax rates before the Scottish Parliament last week as part of the annual draft Budget process (see our Stamp Duty Calculator guide to work out how much you'll pay).
From 1 April 2015, the Land and Buildings Transaction Tax (LBTT) will replace the UK Government's system of stamp duty in Scotland. Under the current system, the rate of tax varies based on the price of the property but the rate of tax is applied on the whole purchase price once a property goes above a threshold, not just to the proportion over that threshold.
Scotland's finance secretary John Swinney says: "The old stamp duty was outdated – causing unfair tax hikes at set property prices. This led to the market being distorted and led people to try to avoid tax.
"Our proposed residential transactionrates will be more proportionate to the house price, and means that the tax is fairer as it is based more closely on the buyer's ability to pay."
The move was welcomed by Martin Lewis, founder and editor of MoneySavingExpert.com, who has previously written about the unfairness of the UK system (see his blog The UK's worst tax).
He says: "Stamp duty has been the UK's most unfair tax. Not because of the amounts charged – that's a political discussion – but because of the ridiculous cliffhanger structure that means you suddenly pay a huge amount more for a house a penny more expensive. This perverts the housing market.
"So bravo to Scotland for changing things and ditching the antiquated unfair old system – lets hope the rest of the UK follows its lead."
When MoneySavingExpert.com asked the Treasury if it planned to follow suit, it said it could not speculate on whether a system similar to the LBTT will be bought in elsewhere in the UK.
But the Government is likely to now face even greater pressure to reform the stamp duty system; Lewis's sentiments have been widely echoed over the past week.
Andrew Baddeley-Chappell, Nationwide's head of policy and governance for mortgages and savings, says: "Nationwide has previously called for the removal of the slab structure from stamp duty and hope that if the new Scottish tax is shown to have positive benefits, stamp duty will be reformed in the same way across the rest of the country."
The unfairness of the current system has been exacerbated over the past year as price rises have pushed the average house price in the UK above the £250,000 mark, according to the Office for National Statistics. This means average buyers face a tax bill of at least £7,500 – the bill rises by £5,000 as soon as the house price goes 1 penny over £250,000 because the stamp duty rate on purchases under this amount is just 1%.
What does this mean for the average Scottish home buyer?
As the average house price in Scotland is £162,000, according to the Scottish Government, home buyers would pay nothing on the first £135,000, then 2% on everything above this. So a total tax bill on an average property would come to £540, as opposed to the £1,620 they'd pay under the current UK stamp duty rate – a saving of over £1,000.
The Scottish Government says 90% of home buyers will either pay less or the same amount as they would under the current system. It adds that around 49,000 buyers each year will pay less tax on their homes, and around 5,000 won't pay any tax at all as they'll fall under the £135,000 threshold.
However, those able to afford a property costing £324,000 or more will see their tax bill rise under the new Scottish system.
The table below shows the property value in both the UK and Scotland and how much tax buyers would pay under the current UK stamp duty rate and the proposed LBTT for Scotland:
What are the proposed new tax rates?
The tax rate proposals are as follows:
Property price | Rate |
Up to £135,000 | 0 |
£135,001 - £250,000 | 2% |
£250,001 - £1,000,000 | 10% |
Over £1,000,000 | 12% |
Comparing stamp duty systems
Property price | Tax paid under current UK system | Tax paid under Scottish system from April 2015 |
|---|---|---|
£135,000 | £1,350 | 0 |
£150,000 | £1,500 | £300 |
£180,000 | £1,800 | £900 |
£200,000 | £2,000 | £1,300 |
£225,000 | £2,250 | £1,800 |
£250,000 | £2,500 | £2,300 |
£250,001 | £7,500 | £2,300 |
£300,000 | £9,000 | £7,300 |
£325,000 | £9,750 | £9,800 |
£350,000 | £10,500 | £12,300 |
£400,000 | £12,000 | £17,300 |
£450,000 | £13,500 | £22,300 |
£500,001 | £20,000 | £27,300 |
£550,000 | £22,000 | £32,300 |
£600,000 | £24,000 | £37,300 |
£650,000 | £26,000 | £42,300 |
£700,000 | £28,000 | £47,300 |
£800,000 | £32,000 | £57,300 |
£900,000 | £36,000 | £67,300 |
£1,000,001 | £50,000 | £77,300 |
£1,250,000 | £62,500 | £107,300 |
£1,500,000 | £75,000 | £137,300 |
£1,750,000 | £87,500 | £167,300 |
£2,000,001 | £140,000 | £197,300 |
£2,500,000 | £175,000 | £257,300 |
How will the new system work?
LBTT is calculated on the value of the land and property when bought or transferred, not on any moveable items included in the sale. It doesn't apply if the property is given and received as a gift.
The Scottish Government says home buyers will pay the tax in the exact same way as stamp duty, but that the money will no longer go to the Treasury in London as it will stay in Holyrood.
On the 'effective date' of the transaction – usually the date of completion – taxpayers have 30 days to pay the rates to Revenue Scotland. The LBTT return must be submitted and payment of the LBTT due to Revenue Scotland must be made before the Keeper of the Registers of Scotland can issue the title deeds for the property.
This is usually done through a solicitor, but the ultimate responsibility rests with the buyer.
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3 September 2024
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