Surcharge on BTL - Devil in the detail!

“Our LBTT additional homes supplement therefore seeks to ensure that the opportunities for first time buyers to enter the housing market in Scotland remain as strong as they possibly can. The proposed additional levy of three percentage points on transactions over £40,000 is proportionate and fair.” John Swinney

Not long to go now until we have the launch of the Buy to Let Surcharge that has been foisted upon those beleagured investors. For those of you that need reminding, Mr Swinney believes that there are too many investors gobbling up property and the poor first time buyer has been priced out of the market. I do not know where he has been living in the last 10 years but maybe he should have talked to people in the property space and he would soon realise that there is little wrong with the amount of property on the market. If he wants to help first time buyers then do something about helping them finance the purchase rather than come up with some cock and bull message about how the surcharge will help first timers. Lets be transparent here. It all about raising more tax because they have cocked up with their LBTT figures and are not prepared to do anyhting with Council Tax.

Rant over. Now on with the blog!

It is not only BTL investors that need to be wary of the new surcharge because there could be situations where the humble purchaser and seller may be unwittingly drawn into paying the surcharge. Let me explain. The surcharge is levied where if at the end of the day of your transaction you end up owning two properties. The 3 % surcharge will be levied. Purchasers and seller will be hit by the following two scenarios:-

Scenario 1

Buyer who already owns a property and decides to buy somewhere that needs a bit more than the usual lick of paint. He decides that he would rather buy the new place and not dovetail the purchase and sale, leaving him time to do up the new place whilst living in his old property. If he buys the property and does not sell his own on the same day then he will be liable to pay the 3% surcharge ie an additional 3% on his purchase price.

Scenario 2

There is a cock up with the buyer's purchase and for whatever reason the buyer is not able to complete his purchase on time but has concluded missives. The person selling him the property has also tied themselves into missives and are under pressure to complete. The seller decides to proceed with their purchase. Because there is a delay in their sale, they end up with two properties at the end of the transaction day. The seller then gets hit with the 3% surcharge and is likely to sue the purchaser of their property.

The saving grace is that if you sell the second property within 18 months then you can claim back the 3% tax. How long this will take is anybody's guess. Have you every tried to speak to anybody at the Reveune? The patience of Job is required, so goodness knows when you will get the rebate. You are then left in a cash flow crisis trying to find the additional 3%. I have yet to meet a client who has an additional 3% tucked away for such an eventuality. I fear a car crash coming on!

And I haven't even touched on what effect the surcharge will have on the overall market................................