McVey & Murricane introduce innovative property taxation explainer
Scottish property taxes have fallen within the ambit of Revenue Scotland (part of the Scottish Government) for a few years now. The main tax is called LBTT and there is a supplementary tax called ADS.
LBTT is the Scottish replacement for Stamp Duty and follows a different structure from its English counterpart. While relatively more kind at the lower end of the property price scale, LBTT is harsher for middle market and especially upper market properties. While this is perfectly reasonable from an equitable point of view the structure of the tax has meant that the middle market and upper market properties (outside of hotspots) have been quite badly impacted by LBTT. It is also one of the reasons why the tax is not producing the expected revenue for the Scottish Government. The amount of LBTT payable in the middle market is often dissuading people from moving choosing to build an extension or convert the garage as an alternative.
That in turn means that the property ladder is not working effectively in Scotland. The response from many people, especially those who are struggling to take the first steps on the property ladder, may be a shrug of the shoulders. But the problem is that the stickiness of property in the middle market distorts the entire market. The 2008 financial crisis severely impacted volumes of property sales as well as property prices. While property prices in some locations have recovered, the volumes of transactions remain historically low. Current volumes of transactions are still around 50% of those in the late 1990s.
Property experts are concerned that the impact of LBTT further accentuates this problem because, as explained above, those in the middle market are often choosing not to move which reduces the liquidity of property in many suburban areas.
These issues are exacerbated by ADS which is sometimes (though inaccurately) called the “second home” tax. Taxation has to be raised somewhere and property is always an attractive victim because the administration of the tax is so simple and the ability to collect so effective. (It is done by solicitors as unpaid government tax collectors!).
There are many arguments for ADS such as the reduction in the size of the market where someone is buying a second home and to dissuade buy to let investors from overwhelming the market and placing first-time properties outside of the grasp of young people wanting to take those first steps on the property ladder.
Unfortunately, as always with taxation, there are unintended consequences. In an effort to make the tax is free of loopholes as possible, ADS has been created so that many situations, which have no apparent connection to a “second home” or “buy to let purchase” fall within the ambit of the tax.
This means that some people involved with entirely straightforward purchases or transfers of property suddenly find that they may face a charge amounting to 3% of the price of the property which they are purchasing. That is a tough message.
With such a large conveyancing business, McVey & Murricane have, from the very outset of ADS, endeavoured to explain the nuances and extensive reach of the tax to clients. Recently, McVey & Murricane have introduced an innovative and straightforward guide for clients to determine whether ADS applies. At the same time, McVey and Murricane have built up more experience of the workings of ADS perhaps more than any legal firm in Scotland. John Clyde (pictured) is a property solicitor with more than 40 years' experience and is an expert on the ADS mechanisms and is available to assist McVey and Murricane clients.