Fears raised LBTT could have unintended consequences for homeowners

Many thousands of homeowners will be hit by the second homes levy due to come into effect in the coming months.

An extra three per cent levy on purchases of second homes worth over £40,000 will be imposed by the Land and Buildings Transaction Tax (LBTT), raising fears there could be unforeseen consequences.

For example, the changes could penalise buyers unable to sell because of a stagnant market or sellers whose house sales do not finish up on time.

Inheritors of second properties would also be affected and those who need to buy a house for an elderly or disabled relative or a child who is a student.

It is also unclear whether a property would be subject to the charge if a spouse bought a house but the first house was registered only in the partner’s name or if the couple cohabited but were not married.

Finance Secretary John Swinney told Holyrood’s Finance Committee yesterday that he was “open to designing reliefs that are genuine” and pledged a review of the planned law.

Speaking to Scottish Legal News, Brodies partner Isobel d’Inverno said: “Properties owned not just in Scotland but anywhere in the world have to be taken into account. The three per cent applies to the whole of the purchase price, not just the excess over £40,000 and is paid in addition to the LBTT which would normally be payable on the transaction.”

She added: “All purchases of residential property by companies and similar bodies will be subject to the supplement, although the Scottish government is considering an exemption for bulk purchases of residential property. The supplement doesn’t apply if missives were concluded before 16 December 2015.”

In her capacity as a representative of the Law Society of Scotland, Ms d’Inverno raised with the committee the issue of grace periods for house completions which are behind schedule and which would see people becoming unwilling second home owners. She suggested a grace period of three months.

Mr Swinney meanwhile rejected the idea of a retrospective supplementary charge, preferring instead a rebate system. He said: “I think the most effective way to do it is to secure the upfront payment.”

A Scottish government spokesperson said: “The LBTT Bill is currently going through the parliamentary process. We welcome all contributions to the debate and will be looking at the issues which have been raised as part of this process.”