Scottish government revises property tax after UK stamp duty changes

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The Scottish government has been accused of falling into line with Tory tax cuts after the finance minister, John Swinney, announced changes to flagship legislation that he previously described as emblematic of the SNP’s approach to a more progressive taxation system in Scotland.

Described as a new mansion tax to fund a cut in sales duty on affordable homes, the land and building transaction tax (LBTT) was unveiled last October as a replacement for stamp duty, with an incremental scale of rates under which buyers of homes worth £1m, for example, would pay £78,300 in tax, compared with £50,000 under the old system. The scheme comes into force in April.

In December the UK chancellor, George Osborne, announced his own changes to stamp duty, resulting in properties at the higher end of the market attracting a lower rate of tax than under the proposed Scottish system. Industry experts said this would lead to panic-buying before April and a flattening of the upper portion of the Scottish property market afterwards.

The Scottish government then announced plans to review its scheme, which Osborne described as an early example of “tax competition in action” between the countries. The revised scheme announced on Wednesday has a higher starting rate and includes a new band of 5% tax for properties priced between £250,000 and £325,000. The 12% marginal rate will now apply to houses costing more than £750,000, rather than £1m.

Stephen Boyd, assistant secretary of the Scottish TUC, described the new bands as disappointing. “Even before this new tax is introduced, the bands have been restructured in reaction to UK Tory policy. There is no point in the STUC and others campaigning for new tax powers if the Scottish government is to formulate and implement tax policy on the basis of what is happening at Westminster. Indeed, the Scottish government needs to urgently rethink its whole approach to taxation, which to date has been incoherent and often regressive.”

Andy Wightman, a Scottish land reform expert and campaigner, said: “Cutting the LBTT or stamp duty rate doesn’t help anyone. It merely pushes house prices up. I don’t understand why the SNP is following George Osborne, but tinkering is no substitute for abolishing this bad tax in its entirety and raising the revenue instead by a well-designed system of annual property taxation.”

Swinney said the scheme remained true to its original values. In a debate on the Scottish government’s budget for the next year, he said the revisions meant that half of all household purchases would be tax-free, while more than 40,000 buyers would pay less.

“The measures I am proposing today send a very clear message. This government has put fairness, equity and the ability to pay at the very heart of the decisions that we have taken,” he said.

The Scottish Conservative finance spokesman Gavin Brown said the changes to the scheme would not have happened without pressure from the Scottish Conservatives and Osborne’s reforms, but said more changes were needed to ensure there was not “a Scotland-only tax on aspiration”.

Powered by article was written by Libby Brooks, Scotland reporter, for The Guardian on Wednesday 21st January 2015 17.51 Europe/London © Guardian News and Media Limited 2010