Agency uncovers big fall in property taxes

Revenue from property taxes in Scotland has dropped significantly so far this year, according to a prominent lettings agency. 

DJ Alexander Ltd - the largest lettings agency in Scotland and part of the Lomond group - says income from the Land and Buildings Transaction Tax  on residential sales collapsed at the start of the year with the first two months of 2023 down £44.4m (a drop of 36.1 per cent) compared to the previous two months.

LBTT is the Scottish equivalent of Stamp Duty Land Tax operating in England and Northern Ireland.

The largest LBTT fall occurred among people buying a home for themselves which saw a drop of £39.6m - that’s down 44 per cent - comparing the first two months of this year with the last two of 2022. 

Revenue from second home buyers, landlords, and property investors - who pay a six per cent surcharge on top of standard LBTT - fell by £5m, which represents a 15.1 per cent drop.

Total revenue from both residential sales and non-residential sales was 37.1 per cent down.

David Alexander, the chief executive officer of DJ Alexander Scotland, comments: “It is clear that the property boom has started to come to an end with its consequent impact on revenues for the Scottish government. It is highly likely that this reduction will persist throughout this year and may even fall further depending on how well the housing market holds up given the cost-of-living situation, utility costs, and the continued impact of high inflation.

“It is interesting to see that second home buyers, landlords, and property investors have remained more active purchasers than homebuyers. They contribute more per purchase than anyone else given the additional 6% Additional Dwelling Supplement (ADS) applied to these buyers and it will be interesting to see if the recent hike in tax in the Scottish budget negatively impacts activity in this market.

He continues: “Of course these figures could simply be a seasonal blip and they may also be a response to increased caution caused by recent financial uncertainty but they could be a sign of a greater shift in the market. If this represented a more permanent fall in revenue from property taxes then the Scottish Government will face a shortfall in its projected earnings for the coming year.

“For the 2022-23 financial year it will undoubtedly reach its target of £797m revenue from residential and non-residential sales (the former makes up the bulk of this income). However, it has forecast revenue of £821m for 2023-24; £849m for 24-25 rising to £987m by 2027-28 which will be almost double the figure for 2020-21 which was £517m.”

Alexander says that the Scottish government, like all governments, has long regarded the investor and even ordinary home buyer as a cash cow. But with just £50.9m raised in February - which is the lowest monthly figure since May 2021 - and the likelihood of a potential shortfall in revenues this coming year of around £200m it is clear that this source of income may be drying up.

He concludes: “One action which the government in Scotland could do to raise revenues, would be to make house buying more attractive for the homebuyer and the investor by reducing the taxation on each sale to ease costs at a time when the market is being squeezed. This was introduced in England last year as a means of supporting housing while there remains a downward pressure on the market.

“If property taxes were reduced to match England rates this policy would have a positive impact on the Scottish market. Contrary to the popular view reducing taxes generally increases revenue raised as it supports higher sales volumes. This action alone could prevent a future shortfall in revenues from property taxes for the Scottish Government in the next few years.”