Property for sale: The LBTT holiday and what the future may hold.
Hooray!! A stamp duty (aka LBTT) holiday for us all. But what does that mean to the Cumbernauld and Kilsyth property market?
Prior to the Coronavirus pandemic, we entered 2020 with optimism and confidence in being able to sell our current homes and buying our first homes. Scottish house prices had risen by 1.5% from the year prior and things were looking buoyant. However, events took an unexpected turn with the COVID-19 restrictions put in place and subsequent lockdown, resulting in the housing market becoming a tricky field to navigate across.
In a bid to boost the property market and increase the wider economy, both the UK and Scottish Government announced an LBTT threshold increase for a limited period.
UK Chancellor Rishi Sunak announced plans to raise the threshold for home buyers in England and Northern Ireland's requirement to pay Stamp Duty Land Tax (SDLT) from £125,000 to £500,000. Subsequently, Scottish Cabinet Secretary for Finance, Kate Forbes MSP, announced that the starting threshold for Land Buildings transaction tax (LBTT) in Scotland for residential properties would be raised from £145,000 to £250,000.
According to the Scottish Government, this would result in 8 out of 10 home-buyers paying ZERO LBTT on their purchase and thus making large savings.
These changes came into effect on the 15th July 2020 and are good for sale completions until 31st March 2021. If you are purchasing a second or additional home, though you will not pay LBTT up to the £250,000 threshold, the "Additional Dwelling Supplement" (ADS) 3% surcharge still applies. However, should you subsequently sell your first property within 18 months you can then make an application to claim back the ADS.
What is LBTT?
In 2015, the Scottish Government, with newly devolved powers replaced the traditionally known "Stamp Duty Land Tax" (SDLT) with the "Land Building Transaction Tax" (LBTT).
LBTT is structured in tiers meaning buyers pay a different rate of tax depending on the tier the property price is within.
What does this mean in monetary terms?
The new threshold limit means anyone purchasing a home under £250,000 will pay ZERO tax. If you purchase a house over £250,000, the tax is only applicable to any amount over that amount. As an example, if the sale price was £300.000, then LBTT would only be applicable on the £50,000 above the £250,000 threshold. The table below details the LBTT rates applicable before and after the change;
||Transactions before 15th July 2020
||Transactions between 15th July 2020 – 31st March 2021
|£145,001 - £250,000
|£250,001 - £325,000
|£325,001 - £750,000
Who will benefit the most?
Effectively, everybody will. Anyone purchasing a house above £250,000 will save a minimum of £2100 on LBTT. With house prices in Scotland averaging £179,541, people are set to save £690 in LBTT on that amount. This will be the incentive for many to go ahead and buy their next home.
As incentive to first-time buyers, they were not required to pay LBTT on purchases up to £175,000. Prior to the changes, this would have resulted in them seeing a saving of £600 on LBTT. However, raising the threshold to £250,000 means first-time buyers can now save up to an extra £1,500 on LBTT. In addition, the Scottish government have invested a further £50 million into Scotland’s "First Home Fund" scheme to help them save for a deposit.
The tax holiday will also increase listings, as buyer activity and interest will be stimulated. This in turn encourages those who were thinking of selling their home to take action and make the decision to do so.
By enabling buyers to save money, they in turn will have more to spend on home renovations, decoration and improvements, subsequently boosting the economy as a whole. Finally of course, we should consider the fact that buyers are likely to go that little bit further with their spend. By using the money saved in LBTT, they are able to increase their offers in a bid to secure the house of their dreams.
Race against the clock
We must remember that this is a temporary tax reduction and will increase in March 2021, so time is of the essence.
The average house price in Cumbernauld currently is £148,042 and in Kilsyth is £146,307. Lets look at a few real-world examples to see how the new tax holiday could save you some money. We'll use some examples of properties currently available in the area:
4 Bedroom detached house. Papstone Place, Kilsyth - Fixed Price £298,000
Total LBTT tax due if purchased between 15th July 2020 – 31st March 2021 is £2400.
Predicted Total LBTT tax due if purchased after 31st March 2021 is £4500.
A tax saving of £2100.
4 Bed Detached House, Ranfurly Drive , Carrickstone, Cumbernauld - Offers over £229,000
Total LBTT tax due if purchased between 15th July 2020 – 31st March 2021 is £0 (ZERO).
Predicted Total LBTT tax due if purchased after 31st March 2021 is £1680.
A tax saving of £1680.
5 Bed detached house , Mosswater Wynd , Cumbernauld - Offers over £375,00
Total LBTT due if purchased for £375,000 between 5th July – March 31st 2021 is £8750.
Predicted Total LBTT due if purchased for £375,000 after 31st March 2021 is £10,850.
A tax saving of £2100.
If you were, or are thinking of buying or selling a home, now is the time to act as these savings won't be around for long. These actions have created a stimulus in the property market and we are in the midst of a mini-property boom.