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Land and Buildings Transaction Tax - A Bit Of Relief For First Time Buyers?

Land and Buildings Transaction Tax - A Bit Of Relief For First Time Buyers?

For many first time buyers, cash-flow is tight and it can be difficult to get on the housing ladder. In an attempt to make it easier for first time buyers, new regulations came into force on 30 June 2018, providing a relief for first time buyers purchasing residential dwellings in Scotland, which they intend to occupy as their only or main residence.

What is the relief?

In simple terms, the relief offers an improved position to first time buyers and raises the zero tax threshold from £145,000 to £175,000. Additionally, any properties purchased at a price over and above £175,000 will benefit from the relief on that part of the purchase price which is below that threshold.

By way of example, a qualifying purchaser who purchases a dwelling at a price of £150,000 will make an LBTT saving of £100. Similarly, a purchaser who purchases a dwelling at £200,000 will save £600 and will have an LBTT bill of £500 rather than £1,100.

The relief applies to all purchases of residential dwellings where missives are concluded on or prior to 9 February 2018 and where the effective date (in most cases, the date of entry) is on or after 30 June 2018.

How does someone qualify for the relief?

In order to qualify for the relief, the purchase must meet the following criteria:

  • There must be an acquisition of land consisting entirely of residential property. The relief will not apply to mixed use property purchases, even if a dwelling is included.
  • The buyer must not have previously owned a dwelling, either in Scotland or the rest of the world. Gifted or inherited dwellings, as well as certain properties held in trust, will be taken into account in establishing whether the first time buyer test is met.
  • The buyer must intend to occupy the dwelling as their only or main residence. Ordinarily, this will be straightforward but each case will depend on its own facts. A buyer does not need to occupy the property immediately after purchase so if they plan to renovate before moving in, they can benefit from the relief provided they intend to live there once the works are done.
  • The relief only applies where there is a purchase of a single dwelling.
  • The relief does not apply if the purchase would qualify as an additional dwelling under the Additional Dwelling Supplement (“ADS”) legislation. A person is deemed to own property which is owned by their spouses/civil partners/cohabitants and dependent children and may be disqualified from the relief on this basis. 

Will the relief help first time buyers?

The potential relief for a first time buyer saving up to £600 is clearly welcome but it is still a fairly small sum in the context of the costs involved in purchasing a house.  Does the relief go far enough?  A similar relief is in place in the rest of the UK in context of Stamp Duty Land Tax which applies to purchases up to £300,000 (and £500,000 in London). An increase in the relief available to Scottish first time buyers so there is no discrepancy with the rest of the UK would certainly improve things further.

Even if the relief does assist more first-time buyers in entering the market, this may simply lead to increased competition and increased prices within the market, meaning that the benefit of the relief is lost. It does pose the question as to whether the focus should be on improving the mismatch between supply and demand within the Scottish housing market and resolving issues within the planning system, so as to enable housebuilders to build more homes.

The new relief is a positive step by the Scottish Government and any assistance available to first time buyers is to be welcomed. Hopefully the new relief increases the availability and affordability of housing for first time buyers in Scotland and helps them take those first steps on the housing ladder.

By Stuart Gardiner
Senior Solicitor, Property

Burness admin