Law Society of Scotland backs new land tax system

    A new "distinctly Scottish" system of land tax will be a great improvement to the current UK wide system of stamp duty land tax, the Law Society of Scotland has declared, as it will be based on Scottish conveyancing practice and will introduce a progressive rate of payment rather than the current 'slab' structure.

    The new Land and Buildings Transaction Tax will replace the current UK wide Stamp Duty Land Tax from April 2015.

    Ahead of giving evidence to the Scottish Parliament's Finance Committee, Isobel d'Inverno, convener of the Society's Tax Law committee said: 'We very much welcome the introduction of a progressive tax structure, rather than the current 'slab' structure, which is perceived by many to be unfair due to the steep rise in tax for properties just above the thresholds.  This distorts the market by keeping prices artificially low and gives rise to avoidance under stamp duty land tax.  We believe that this new progressive structure will eliminate these issues.

    Ms d'Inverno continued: 'This proposed new tax has the potential to make a real improvement to the current system in Scotland.  It is very much drafted in Scots law terminology, and reflects Scots property law and conveyancing practice.  The introduction of a much simpler regime for a land and buildings transaction tax  will be of great assistance to solicitors and their clients and will make it much more workable and easier to administer'.

    ESPC approved the new tax measures as well, suggesting that LBTT's progressive taxation structure promises to be "more attuned" with Scottish housing market conditions.  

    However, Business Analyst David Marshall also cautioned that the tax must be implemented fairly and equitably across the housing market so that households aren't unfairly penalised when moving up the housing ladder.

    Speaking before MSPs, David said that though he agreed with the move away from Stamp Duty, he pointed out that under current proposals, many families looking to move into 3 and 4 bedroom homes for sale in Edinburgh, and other areas with house values higher than the Scottish average, will be expected to pay substantially more in tax than is currently the case.

    He commented: "ESPC fully agree with the general structure of the LBTT and believe the move to a progressive system will correct some of the market distortions brought about by Stamp Duty's 'slab' approach.  We expect that the tax applied will be more reflective of the total value of the home being sold, which would bring an end to the inefficiencies brought about by the current approach.

    "However, the Scottish Government must take care in determining the proper level at which purchasing higher value homes incurs substantially more tax.  Example tax scenarios published by the government indicate that anyone looking to buy a home for £400,000 would pay at least £4,500 more in tax, despite over 18% of sales in Edinburgh of 3 and 4 bedroom homes selling for £400,000 or more.  Areas of the country where house prices are higher are not always matched by similarly high income levels, so we would hope that the final proposal takes this into consideration to avoid undue pressure being put on families.

    "Though we agree with the principle of the tax to place a greater burden on those wishing to buy higher value properties, it is important to avoid the creation of any undue blockages in the still-recovering housing market.  If it becomes too onerous for a household to move up the housing ladder, it has knock-on effects on other areas of the market."