The Scottish Finance Secretary, John Swinney, announced in December, 2015, the introduction of a new 3% charge payable on the purchase of second homes in Scotland, including buy to lets, effective as of 1^st April, 2016.

The move mirrors a similar proposal previously outlined by the UK government. The 3% charge (payable in addition to Land and Buildings Transaction Tax under the current rules) applies to anyone purchasing a second home or a buy to let property.    As well as buy to let investors, this will also affect anyone purchasing a holiday home or purchasing a property for children or for parents.  The new tax will apply to any property purchased for more than £40,000.

At the moment any property purchased for £145,000 or less incurs no tax charge, however after 1^st April, 2016 a second home or buy to let property purchased for £145,000 will incur a tax charge of £4,350.  A buyer of a second home in Scotland priced at £300,000 will have to pay a total of £13,600 in tax after 1^st April, 2016, as opposed to £4,600 prior to this date.

John Swinney defended this new tax on the basis that it was necessary to prevent buyers from elsewhere in the UK purchasing property in Scotland in order to avoid the similar tax previously announced by the UK government, the argument being that this would have made it more difficult for first time buyers in Scotland to get onto the property ladder.

It is certain that this additional tax will have an impact on the buy to let market and will adversely affect the position of both tenants and landlords.   The surcharge is a blow to landlords who have also recently suffered the loss of buy to let tax relief.   Less buy to let properties are likely to be purchased which will no doubt lead to a shortage of private properties available for lease.   Rents may also increase as landlords seek to recover costs and potential tenants compete for the dwindling supply of available properties.

The guidance issued indicates that the intention is to charge the increased tax if, at the end of the day, an individual has an ownership interest in two or more residential properties.  However the surcharge will not be payable if the purchaser is replacing their main residence.  An example would be a person owning a buy to let property and a main residence.  After 1^st April, 2016 the sale of the main residence followed by the purchase of a new home would not lead to an increased tax charge, however selling the existing buy to let and purchasing another would.

If an individual purchases a new home but decides to rent out their current property rather than selling it, that person will be deemed to have purchased a second home and the 3% supplement will apply.   If the original property is eventually sold within eighteen months of the purchase of the new property, then the additional tax will be refunded.

Properties situated outwith Scotland, and indeed outwith the UK, will be taken into account. Therefore someone with a property in England or Spain will be liable for the additional tax when buying a property in Scotland.

A limited company purchasing a residential property will be charged the additional tax even if it only owns one property.  This is designed to prevent individuals from setting up companies to purchase properties to avoid the new charge.

A property owned by the buyer’s spouse, co-habitant or child under sixteen, is treated as being owned by the buyer of a property.   Properties in the name of one spouse will count against the other when determining whether more than one property is owned.   Joint buyers are also caught under the new rules.  If two people, A and B, each own their own property which they occupy as their main residence and go on to buy a house to move into together, with A selling his property, but B keeping her original property to rent out, then the additional tax is payable on the joint purchase, because B is not replacing her main residence, even though A is.

If you are potentially affected by the new rules, then the only advice that can be given with any certainty is that in order to be sure to avoid paying additional purchase tax on a buy to let or second home, purchasers have to buy now in order to complete their purchase prior to the 1^st April, 2016 deadline.

For advice on the implications of the new tax or on buying or selling generally, please contact Estate Agency Partner, Brian Sutton on 01224 563340 or by email at This email address is being protected from spambots. You need JavaScript enabled to view it.