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Scottish Budget 2018 – 1% Additional Dwelling Supplement rise deals blow to landlords

3-minute read

Lauren Hellicar

13 December 2018

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Derek Mackay has announced the draft Scottish Budget for 2019-20 – here’s what it means for landlords.

Mr Mackay promised a Budget that ‘delivers for the Scotland of today and invests for the Scotland of tomorrow’.

The headline for buy-to-let landlords is an increase in Land and Building Transactions Tax (LBTT), which is the Scottish equivalent of stamp duty.

The move will mean some will pay as much as 16 per cent in Additional Dwelling Supplement on the highest portion of the price when they buy a second property.

Additional Dwelling Supplement increase

In a bid to make the property market more accessible to first-time buyers, and to help others climb the property ladder, the Scottish Finance Secretary’s Budget includes an increase in Additional Dwelling Supplement (ADS) rates on the purchase of most second properties.

ADS came into force in 2016. You need to pay it when you buy a second residential property in addition to your main home.

Previously set at three per cent on top of the LBTT that all property buyers must pay in Scotland, the 2018 Scottish Budget contains a planned increase to four per cent for most properties worth up to £145,000.

How much LBTT will I pay when I purchase a buy-to-let property in Scotland?

You won’t pay any LBTT or ADS on your buy-to-let property if it’s worth less than £40,000. If it falls in the £0 to £145,000 bracket, you won’t pay LBTT but you will pay ADS at the new rate of four per cent from 25 January 2019.

LBTT and ADS are payable on a tiered basis for different portions of the property price. The higher your second property’s value, the higher the percentage you’ll pay.

Proposed ADS rates in Scotland from 25 January 2019

  • £0 to £145,000 – four per cent (previously three per cent)
  • £145,001 to £250,000 – six per cent (previously five per cent)
  • £250,001 to £325,000 – nine per cent (previously eight per cent)
  • £325,001 to £750,000 – 14 per cent (previously 13 per cent)
  • £750,001 and over – 16 per cent (previously 15 per cent)

According to Which?, the change would mean that if you bought a second residential property for £250,000, your tax bill would go up from £9,600 to £12,100.

But this is all dependent on whether the Budget is passed by parliament.

Getting the budget through parliament

Now that the SNP government has drafted its plan for Scotland’s finances for 2019-20, it still has the task of getting it past the final vote, which is due to take place early next year.

One potential sticking point is the fact that it’s a minority government, which means it needs votes from other parties to get its Budget approved.

The Greens have been a key ally in the past, but this year they want to see commitment to major reform of local government funding before they’ll back the SNP’s Budget.

Lib Dem support also comes with a condition – their terms are that the SNP won’t push for another independence referendum, reports the BBC.

Other key Scottish Budget 2018 announcements

The Budget proposes a freeze on income tax rates while starter and lower rate thresholds are to increase in line with inflation.

There’s also a planned freeze on the higher rate income tax threshold, with the Scottish government stating that 55 per cent of Scottish taxpayers will pay less than other parts of the UK.

It’s claimed that this will free up £68 million of additional revenue to invest in ‘essential’ public services.

The Finance Secretary has also provided for:

  • £825 million of investment in affordable housing across Scotland
  • £52.3 million to make sure no one in Scotland pays the Bedroom Tax
  • £5 billion of infrastructure investment to make Scotland a more attractive place to do business
  • ‘Generous’ business rates relief worth more than £750 million
  • An extra £730 million of investment in health and care services
  • GDP growth forecast at 1.4% in 2018, 1.2% in 2019, 1% in 2020 and 2021, 1.1% in 2022 and 1.2% in 2023

Making provisions for Brexit was a key theme of Mr Mackay’s speech, as he noted it may impact on government spending plans depending on the eventual outcome.

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