Shock figure reveals tax burden paid by private rental sector

Property taxes in Scotland exceeded £600m over the last year according to analysis of the latest statistics by the country’s largest lettings agency.

Scottish Government revenues from Land and Buildings Transaction Tax totalled £619.6m in the 12 months to December 2023. This is slightly lower than 2022 when £623.1m was raised but is £224m higher than the pre-pandemic figure of £395.6m in 2019.

Of the £619.6m taxes raised £196.9m is from the additional dwelling supplement which is charged on second homes and properties purchased by landlords and property investors to rent. This is 31.8 per cent of the total raised and is £44m higher than 2022 which was 24.5 per cent of the previous years’ total. 

Almost all the taxes raised arose from properties sold for more than £325,001. The 16,430 transactions above this threshold raised £350.5m which is 82.9 per cent of the total £422.7m raised in LBTT - this is the figure for residential sales with the ADS figures removed. This means that the average tax levied per transaction was £21,332.

David Alexander, the chief executive officer of DJ Alexander Scotland, comments: “Since the pandemic the price of properties has risen substantially in Scotland. Since March 2020 until September 2023 (the latest date for which there are statistics) average house prices across Scotland have risen £41,492 to reach £192,117 which is an increase of 27.5 per cent in three and a half years which is an extraordinary rate of growth.

“The result is that taxes charged on property sales are now substantially higher than even three and a half years ago. But increasingly the bulk of this income is dependent on transactions for properties worth more than £325,0001. Almost 90 per cent of total revenues were generated from a few thousand buyers who contributed, on average, over £20,000 to buy a home in Scotland.

“Were these buyers to purchase a home in England then they would not start to pay the 10 per cent tax until the value of their property was greater than £925,000. In Scotland, a home costing £325,001 is the starting point for the 10 per cent levy. Furthermore, 12 per cent is charged on properties selling for more than £750,000 whereas south of the Border this level does not kick in until prices reach £1.5m. It is clear that Scottish homebuyers are being charged considerably more in tax for the privilege of owning a home north of the Border.

“What is of further interest is the substantial increase in purchases by investors, landlords and second homeowners. Given the punitively high taxation paid by this group of buyers it is testament to their resilience and belief in the Scottish market that they are buying properties in ever larger numbers because they want to invest in the private rented sector, or they wish to have a second home here. Either way they are contributing substantial levels of tax to the Scottish purse and should be encouraged to invest more in the future.”

He concludes: “If Scotland is to be seen as a progressive country wanting to attract the brightest and the best then we must ensure we have a property tax regime which is at least as fair and as competitive as our nearest neighbour. At present we risk putting off buyers, investors, landlords, and second homeowners with a much more punitive tax take. 

“We must have a tax system which is more broadly based and encourages homeownership, at the same time as attracting investment in the private rented sector. That this hasn’t happened yet is evidence of the attractiveness of Scotland as a place to live and invest. But it is important to understand that this can change if taxes keep rising and costs become insurmountable. We should always be aware that those with more money always have the option of moving elsewhere and it would be a mistake to drive these individuals and companies away with excessive taxation.”