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Increase in Additional Dwelling Supplement unlikely to benefit first time buyers

Posted: 17th December 2018

Derek Mackay, Finance Secretary of Scotland, announced his draft Budget on 12th December 2018, in which he proposed amendments to Land and Building Transaction Tax (LBTT), including a 1% increase to the Additional Dwelling Supplement.

The Additional Dwelling Supplement was introduced in 2016 and applies to anyone purchasing a second home. Mackay has proposed raising the Additional Dwelling Supplement from 3% to 4%, which would be payable in addition to the Land and Building Transaction Tax (LBTT) rate for the property purchased.

Mackay implied this change is to help first time buyers and to assist others move up the property ladder, by deterring those purchasing properties to rent out, either as long term or holiday lets.

Nicky Lloyd, Head of ESPC Lettings, said: “While landlords in Edinburgh are unlikely to be happy about the rise in the Additional Dwelling Supplement, at the moment most landlords simply budget for the relevant LBTT amount and 3% surcharge, and I expect this to continue if this Budget proposal is approved. I doubt that this change will deter landlords in Edinburgh, so it is unlikely to free up more properties for first time buyers.”

First time buyers are facing challenges to purchase their first property, particularly in Edinburgh, where there is great demand for one and two bedroom properties in traditionally popular first time buyer areas such as Leith and Dalry. This has resulted in rising average selling prices and flats frequently sold for over their Home Report valuation, making it difficult for first time buyers to get on the property ladder.

Paul Hilton, CEO of ESPC, said: “In east central Scotland and other parts of the country, it can be challenging for first time buyers to get on the property ladder. However, this small amendment to LBTT is unlikely to benefit first time buyers significantly, as it doesn’t appear likely to deter buy-to-let investors, particularly in areas such as Edinburgh, where rental and holiday let properties are in high demand.

“Rather than small amendments, it would be beneficial to have a wide-ranging review of LBTT as it currently stands. The high tax that sellers require to pay for new properties can discourage people from putting their home up for sale. In turn, this restricts the availability of properties on the market. The supply of homes hasn’t been keeping up with the demand in east central Scotland which has been driving up house prices, which negatively affects first time buyers in particular, and it is important those considering selling their home aren’t discouraged by LBTT.”

The increase in the Additional Dwelling Supplement will come into force from 25th January 2019, if it is approved by MSPs. It will not apply if a house buyer entered into a property transaction prior to the Budget announcement on 12th December 2018.

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