KEY FINDINGS:

  • In 2019/20, LBTT returns were up 1.2% and revenue up 10% on previous year. However, Covid-19 has had a severe impact at the start of the 2020/21 financial year, with overall revenues for April and May down 67% on the year before.
  • ADS revenue looks like exceeding £100m for the third year running and is now over 30% of total residential LBTT revenue.
  • The middle to upper parts of the market continue to pay a significant proportion of LBTT revenue (10% of sales over £325k contribute three-quarters of revenue). This poses a risk if this part of the market weakens, as has happened at the start of 2020/21.
  • The Scottish Government has recently introduced an LBTT ‘holiday’ for the rest of the financial year, which will produce a saving up to £2,100 on property sales, however, there other alternative measures the government could look at to stimulate market activity such as reductions or exemptions for certain groups; revising tax bandings based on firm evidence of behavioural change; and tying LBTT payments to energy efficiency of homes.

Residential LBTT Up Year-on-Year But Future Outlook Uncertain


Like the rest of us, the Scottish Government’s property tax (Land & Buildings Transaction Tax, or LBTT) has had a bewildering last few months. This Briefing looks at the residential part of LBTT based on housing market transactions.

Ostensibly, things look positive - in 2019/20, the number of LBTT returns reached over 105,000, up from just under 104,000 for the same time a year earlier; an increase of 1.2%. The total value of LBTT tax revenues to 2019/20, excluding its sister tax Additional Dwelling Supplement (ADS), totalled £288 million, 10% up on the previous year. The greater increase in revenue, ahead of transactions, reflects the flattening of housing market activity over 2019/20 while prices continued to rise. As the new tax year started in the shadow of the Covid-19 lockdown, the outlook for LBTT revenue in the coming years is highly uncertain and looks likely to be significantly down.

In broad terms, rising house prices and transaction activity in the past few years have supported rising LBTT revenues for the Scottish Government.

LBTT infographicFig.1 LBTT & ADS revenue had been rising due to price & transactions growth

However, this growth has not always been consistent as political factors, such as Brexit, have impacted on market sentiment. Fig. 2 shows the year-on-year fluctuations in LBTT transactions and revenue. There was already a slowing down in transaction numbers from the end of 2019, which turned negative at the start of 2020.

LBTT transactions infographicFig.2 Annual growth in LBTT transactions turned negative in March 2020


With the latest figures now reported, we can see the first impacts of the Covid-19 lockdown, with overall revenues for April and May down c.67% on the year before (Fig.3.). With the housing market effectively closed during April and May, it would be expected any revenues will be minimal for what is usually the buoyant Spring market. It will be difficult for 2020/21 revenues to recover all ground lost after this despite the recent announcement of the recent LBTT holiday which we reflect on later in this briefing.

LBTT excluding ADS infographicFig.3 LBTT revenue in April / May 2020 was down-67% year-on-year as a result of Covid-19