Punitive rates of property tax are curtailing the million pound property market in Scotland with a substantial drop in sales in this housing price bracket.
According to a new report from real estate firm Savills last year sector seemed to be absorbing the rates of Land and Buildings Transaction Tax (LBTT) better than other price bands.
However, the taxation malaise is now spreading into this market with only 56 transactions in the first half of 2017, compared with 79 during the same six month period last year.
The LBTT on a £1 million residential property is £78,350 for a main home or £108,350 for an additional property. In the rest of the UK the tax on a £1 million residential property is considerably lower at £43,750 for a main home or £73,750 for an additional property.
‘Higher rates of property taxation are putting buyers north of the border a distinct disadvantage and will do little to attract wealth from outside Scotland,’ said Faisal Choudhry, director of Savills Scotland research.
He explained that the structure of LBTT relies heavily on the top end of the market, but buyers are being dissuaded from making offers due to punitive rates. Furthermore, fewer prime properties are being launched on to the market in Edinburgh, from where LBTT generates a significant level of revenue.
‘The Scottish Government’s ambitious LBTT targets will not be achieved unless there is a significant change in rates,’ he pointed out.
The research also shows that this market is becoming less concentrated in Edinburgh and the Aberdeen area, with more activity spreading out to the west and other regional locations.
While Edinburgh remains the hub of the million pound market, the city has seen a drop in transactions at this level, with 33 such sales recorded in the first six months of 2017 compared with 45 last year.
In addition, at the height of Aberdeen’s oil dependent residential market, the area generated the second highest level of transactions after Edinburgh. In stark contrast, there were only five million pound transactions during the year ending June 2017, including just one in 2017, in a period characterised by uncertainty in the energy sector.
Meanwhile, there has been a spreading out of transactions to other locations. Greater Glasgow’s million pound market has had a stronger 12 months, with 28 annual transactions taking place during the year ending June 2017 compared with 20 during the year ending in June 2016, most notably the West End, Park, Pollokshields and Bearsden.
The East Lothian market has also been buoyant with eight annual transactions and also Perthshire where the Tower of Lethendy, on the market for £4.6 million, achieved the highest residential transactions price in Scotland since 2007 while Brackenbrae House in Broughty Ferry became Dundee’s first ever million pound transaction earlier this year.