Q We want to move to Scotland from England to be near our daughter. We don’t really know which way around to do this: sell our home and move in with our daughter until we find a new home, or try to purchase a property without selling up? We have read that an additional tax LBTT is 4% more on top of the usual LBTT for second homes but ours would only be until we have sold the one in England as the Scottish property would be our permanent residence. If we do have to pay these taxes can we claim any back once we have sold the English property and is there a time limit on this?
A To the uninitiated, LBTT is land and buildings transaction tax which, in Scotland since April 2015, has replaced stamp duty land tax (SDLT) which is now charged only on land and property transactions in England and Northern Ireland. Wales has its own variation in the form of land transaction tax (LTT) which has been run by the Welsh Revenue Authority since April 2018.
In all three systems, if you buy a new home to live in without first selling your former home, you have to pay a higher rate of whichever tax applies. In England, Northern Ireland and Wales, three percentage points are added to the standard rate of SDLT or LTT. So if the standard rate is 2%, for example, then the higher rate due is 5%. In Scotland, however, they do things differently. First you work out the LBTT due at standard rates but – and if the property costs more than £40,000 – you then add an additional dwelling supplement (ADS) which is worked out as 4% of the purchase price (aka “relevant consideration”).
So if, say, you bought a house for £250,000, the first £145,000* would be LBTT exempt but the next £105,000 (250,000 minus 145,000) would mean LBTT at a rate of 2% and so a bill of £2,100. But assuming you haven’t sold your former home you would have to add to that the ADS of £10,000 (4% of £250,000) making a total bill of £12,100. Provided you sell your former home within 18 months of buying your new home, you can get a refund of the ADS. This is a less generous time limit than that applying in the rest of the UK where you get three years to sell your old home to be eligible to get a refund of the higher rate of SDLT or LTT.
Given the hefty sum you might have to part with to pay the ADS and the tighter deadline for selling your old home, I’d be tempted to sell first and then move to Scotland and find somewhere to buy once you get there. On a practical note, house hunting in situ rather than from a distance is also likely to be more fruitful. Also on a practical note, I’d only move in with your daughter if she has offered to house you; otherwise I’d rent somewhere to live in in the interim.
* The exempt amount is £125,000 in England and Northern Ireland; £180,000 in Wales. The rates charged and the amounts they are charged on also vary between the countries. Find out more about LBTT, LTT and SDLT at the UK government website.