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How will the property market react to the Additional Dwelling Supplement

The Scottish government’s increase to the rate of Additional Dwelling Supplement has now come into effect, since 25th January 2019. It’s payable in addition to the Land and Building Transaction Tax (LBTT) and has risen from 3% to 4% of the purchase price of the property, for properties over £40,000. Here we look at what this could mean for the Scottish property market.

Why has it risen?

The government wants to raise revenue from the increase, they also believe it will help first-time buyers, increase the number of properties available to them and therefore help people in general move up the property ladder. The new tax is forecast to add an additional £25.4 million to Scottish Government revenues in 2019/201.

Will it help first-time buyers?

The government has introduced this increase as part of their measures aimed at bringing more properties onto the market. By making investing in the additional home property market less appealing, it’s hoped that fewer investors will purchase, meaning fewer people bidding on houses and driving up prices. How the market reacts will depend on how effective this is. It may have a noticeable effect on prices, or it may be negligible. We think that it’s likely to be felt in regional ways, with strong property markets, like those in Edinburgh and Glasgow less likely to be affected. Less second-holiday homes will be purchased in popular locations thereby making more properties available to the local population.

Buyers from abroad will see changes too

The LBTT non-residential rates have also changed, again since 25th January 2019. There’s a reduction in the rate for lower-priced homes and an increase for those at the upper end. So on properties from £150,000 - £250,000 the rate reduces from 3% to 1%. And on properties over £250,000 it increases from 4.5% to 5%.

The Brexit factor

The property market is not immune from the uncertainty being felt from the Brexit deliberations. The property market is notorious for disliking uncertainty and Brexit is one of the largest unknowns this generation has had to cope with. So we may see a general lack of movement in the first few months of 2019. Many property experts are predicting a slowdown in the market as the deadline for the UK’s negotiated exit from the EU approaches. Although this is likely to be balanced out after we know what’s happening – that after we learn what Brexit actually means, there will probably be a ‘bounce’ in the market. The London market is most likely to be affected with regional markets less so.

Other things to consider

In Edinburgh, there continues to be speculation of the introduction of a so-called ‘Airbnb’ property tax. It’s expected to limit the number of days a property can be let via Airbnb to around 90 days a year. The thinking behind this policy is to try to limit the number of properties that are short-term unregulated rentals. The hope is to put off some investors, making more properties available for local people who will live there all year round, building communities. Depending on how effective this is, it could have an impact on prices too.

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