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Revenue from the Land and Building Transaction Tax (LBTT) in Scotland failed to reach forecasts for residential sales in the 2015/2016 financial year. The Scottish Government has hoped to raise £235 million but the published figures show it was £201 million, some £34 million below expected and 26% below the £270 million collected the year before. However this fall is likely to have been exacerbated by property market activity brought forward at the end of 2014/2015 as buyers raced to beat the new LBTT when it was introduced in April 2015. LBTT replaced stamp duty on all residential purchases in Scotland and the new rates make it more expensive to purchase property with a value above £333,000 compared to the rest of England and Wales. This is especially the case in the prime market where costs are as much as 90% higher than under the previous system. ‘While the introduction of LBTT in April 2015 resulted in a welcome reduction in purchase costs for a significant number of home buyers in Scotland, the flipside of this was a substantial increase in taxes for those at the top end of the market,’ said Oliver Knight, a senior analyst with Knight Frank Residential Research. ‘Last year, we raised concerns that levying these rates for higher value homes could reduce transaction volumes and ultimately have a negative impact on tax receipts. Policymakers may need to consider allowing some room for manoeuvre on LBTT rates if they find that they continue to impact on activity at this end of the market, and if they want to hit next year’s forecast of £295 million in revenue,’ he added. He explained that one reason for the shortfall in forecast versus actual revenue in 2015/2016 has been the effect of forestalling whereby some transactions were completed earlier than they otherwise would have been to ensure they were assessed under the old SDLT regime. The latest available data from the Registers of Scotland shows that 62% of all residential sales above £1 million in Scotland in 2015 occurred in the first three months of the year, prior to the introduction of the levy. However the amount for commercial property was higher than expected. The Scottish Government had expected to raise £146 million on non-residential property but actually raised £214.2 million, some £68.2 million more than predicted. Blair Stewart, partner in Strutt & Parker's Edinburgh office, pointed out that the LBTT residential shortfall was significant and highlights a weakness in relying on too narrow a band of high value sales. ‘While the commercial LBTT tax revenues came to the rescue this year, the forecast for the next five years is steadily more dependent on high value sales. Equally, the end of the year was distorted because significant numbers of people were buying properties before the LBTT surcharge kicked in. This will not be the case in future years,’ he said. ‘While the whole housing market is improving in terms of sales volumes the… Taylor Scott International
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