Prime property sales in Edinburgh hit by new land and buildings tax in Scotland

Prime property prices in Edinburgh rose by just 0.4% between April and June, the lowest quarterly price growth in two years, according to the latest market report.

Prices are up by 3.4% on an annual basis which is down from the recent 5.7% high in June last year, the data from real estate firm Knight Frank shows.

The firm pointed out that this slowdown in price growth can be attributed to the introduction of the new Land and Building Transaction Tax (LBTT) in April.

The levy, which replaced stamp duty on all residential property transactions, means that those purchasing property with a value above £333,000 now pay more in purchase taxes. As a result, there was a spike in prime transactions in Edinburgh ahead of the introduction of LBTT.

Since then however, there has been a fall in prime transaction levels in the city, with Knight Frank figures showing a drop in sales in the second quarter compared to the same period of 2014.

The Scottish government originally forecast the tax would raise £235 million in 2015/2016. However, figures released by Revenue Scotland, the government body which administers and collects LBTT, showed that receipts from the new levy between April and June have so far totalled just £18.4 million.

The Knight Frank report says it will be telling to see what impact the introduction of LBTT has on overall revenues at the end of this tax year but for now, the prime market in Edinburgh is still absorbing the change.

Indeed, anecdotal evidence suggests that home buyers facing more tax under the new LBTT regime are negotiating with vendors over the additional burden, with the two parties often splitting the price difference between them.

The market is expected to return to more normal trading conditions by the end of the summer however, and prices in Edinburgh are still being underpinned by low interest rates and continued economic growth.

‘We saw an enormous push pre-LBTT, with remarkably high sales in March followed by a very subdued April and May,’ said Edward Douglas-Home, head of Edinburgh City sales at Knight Frank.

‘Our experience is that buyers, particularly those looking for family homes valued at between £500,000 and £1 million, are having to eat further into their deposits when purchasing a property,’ he added.