Could Scotland’s property tax changes drive investors to relocate?

Scotland has just claimed the title of the UK’s most expensive region for landlords in terms of property taxation.

This comes following a significant hike to the Additional Dwelling Supplement (ADS) under the Land and Buildings Transaction Tax (LBTT). Effective December 5th, 2024, the ADS rate increased from 6% to 8%, making Scotland notably costlier than the rest of the UK for those buying second homes or investment properties.

For comparison, the equivalent surcharge for property purchases in England and Wales, under Stamp Duty Land Tax, currently sits at 5%, although these thresholds may revert to higher levels in April 2025. Despite these potential changes, Scotland’s property tax landscape has now firmly positioned itself as less favourable for investors than England.

Industry Concerns Over Rising Costs

The announcement has sparked concerns among property professionals, particularly in light of Scotland’s housing challenges. With demand in the private rental market far outstripping supply, the higher tax burden could exacerbate rental price inflation and deter new investment.

Timothy Douglas, Head of Policy at Propertymark, criticised the move, labeling it “out of touch” with Scotland’s housing needs. According to Douglas, measures like the ADS hike, combined with tenancy rent caps and pending energy efficiency regulations, risk worsening the housing crisis by discouraging landlords from entering or expanding in the market.

A Shift in Investor Interest?

With Scotland’s higher taxes and restrictive policies, property investors may find greater appeal south of the border. The North of England, in particular, has become a hotspot for real estate investment, driven by its competitive property prices, robust rental yields, and ongoing urban regeneration projects. Regions such as the North East and North West of England have seen housing markets outperforming other parts of the UK, providing an attractive alternative for those seeking more favourable tax conditions.

In fact, five-year forecasts from analysts like Savills suggest that northern English regions, including Yorkshire and the Humber, are expected to lead the UK in house price growth, rivaling Scotland’s projected gains.

Balancing Growth and Regulation

Scotland’s property tax changes come alongside a commitment by the government to review the LBTT framework over the coming years, particularly regarding the ADS. While these measures aim to address broader housing market challenges, there’s growing pressure on policymakers to strike a balance between ensuring affordable housing and maintaining a competitive investment environment.

Certainly investors currently weigh their options and Scotland’s tightened tax regime may inadvertently redirect investment to England and beyond in other countries in the EU, where tax policies remain comparatively investor-friendly.

Contact us today and start benefiting from our expert tax advice for relocation, non-dom setup and tax planning in for Scottish nationals and UK citizens in general.

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