Every week, Mansion Global poses a tax question to real estate tax attorneys. Here is this week’s question.
Q: Why are property taxes in Scotland so much higher than the rest of the U.K., and how can I lower them?
A: When Scotland’s Land and Buildings Transaction Tax, known as LBTT, was adopted in 2015, it reduced taxes for those buying properties on the lower end of the price spectrum. But the tax is progressive, so taxes were increased on expensive homes, according to Richard Loudon, senior property partner at the Edinburgh-based law firm Simpson & Marwick.
The tax is based on a series of bands; as the price goes up, the percentage of tax paid also rises. Other British countries have similar land taxes, but Scotland charges more at a lower level.
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"The rates aren’t dramatically different," said Jim Hillan, a tax partner at the London office of the law firm CMS. "But the bands are slightly different."
Those buying in Scotland pay 12% on homes purchased for more than £750,000 (US$987,000), whereas other areas in the U.K.don’t get to the 12% tax level until a property reaches £1.5 million (US$1.98 million).
Take a £1 million (US$1.32 million) home. In Scotland, the tax bill would be £78,350 (US$103,100). But the tax on a £1 million home in England or Northern Ireland would be £43,750 (US$57,600).
The Scottish government enacted the new tax system in order to boost its income, Mr. Loudon said.
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At this point, there’s nothing that can be done to avoid the tax, Mr. Loudon said, although there’s been some talk by the government of lowering the rates. But for now, it’s just talk, he added.
However, Mr. Hillan did stress that buyers should look carefully at the property to see if the residential tax rate should be applied to the entire estate. For instance, if there’s a lot of land, some of it may be considered agricultural, he explained. If so, a commercial tax rate, which is less than the residential rate, may apply to that part of the property.
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