It’s official…if you’re an estate agent in Scotland this year, Christmas is cancelled. And it’s George Osborne’s fault.
The Chancellor of the Exchequer, at times not the most popular man in Scotland anyway, has effectively cancelled Christmas holidays for every estate agent and property solicitor in Scotland in 2014 by announcing a reform of Stamp Duty that will cause a surge of activity in the Scottish property market at the end of 2014 and into early 2015.
For a full analysis of the Stamp Duty reforms, there is a detailed article on our Blog:http://www.mov8realestate.com/2015/01/changes-lbtt-rates-april/.
A temporary tax cut that will cause a rush for properties in Scotland
The Stamp Duty changes, announced on 3 December 2014 and which took effect on 4 December 2014, significantly reduced Stamp Duty for the majority of property buyers.
Good news so far, and no cause for any sort of rash behaviour by property buyers and sellers in Scotland, surely?
Yes, but Stamp Duty will be replaced by Land and Buildings Transaction Tax (LBTT) in Scotland, for property purchases that complete on or after 1 April 2015, increasing the amount of tax that a buyer will have to pay on many property purchase. The tipping-point is £254,000. Anything above that and you will pay more tax under LBTT than under the new Stamp Duty regime.
The average selling price of a four bedroom house in Edinburgh in 2014, according to the ESPC, has been £395,110. A buyer would pay Stamp Duty of £9,756 but, as of 1 April 2015 they will pay LBTT of £16,811, a difference of £7,056.
Basically, this means that property buyers have until 31 March 2015 to benefit from the new Stamp Duty regime, before LBTT replaces Stamp Duty and increases the amount of tax that they will pay.
But surely 1 April 2015 gives you plenty of time if you want to buy or sell a property in Scotland before then? Sadly, no. The completion date (often known as the Date of Entry) must be before 1 April 2015 if you want to pay Stamp Duty rather than LBTT.
It usually takes 6 to 8 weeks from agreeing a sale to the completion date. That means that buyers and sellers looking to take advantage of the new Stamp Duty regime have until mid-to-late February to agree a sale. Given that it takes about 5 to 10 days to get a property onto the market, anyone wanting to benefit from the new Stamp Duty regime will have to act fast.
So, is this having any effect on buyer and seller behaviour?
We were only open for two hours on 4 December 2014 before we received the first call from a seller who was looking to get their property onto the market as soon as possible. They told us explicitly that the change in the Stamp Duty regime was behind their decision. The property, which was worth around £270k, is one of those that will benefit the most from the changes because it’s above the £250k threshold where Stamp Duty used to jump dramatically. The buyer of that property will now save £4,600 in Stamp Duty.
We also received an offer that broke the £250,000 threshold, yesterday. That buyer wouldn’t have offered more than £250,000 on the previous Stamp Duty regime because the Stamp Duty payable jumped by about £5,000 if you pay £250,001 rather than £249,999.
We also had a seller wanting to increase his asking price. Until now, he had had difficulty breaking the £250,000 threshold. However, that seller is now more confident that he can achieve this price because there is no longer the huge jump in tax payable above £250,000.
So, why is Christmas cancelled for most property solicitors and estate agents?
With most solicitor and estate agency firms in Edinburgh and the Lothians closing for a couple of weeks through the festive period, this presents a problem for some sellers who want to get to the market quickly.
We don’t close our office over the festive period and haven’t done so for a few years now. Even without a Chancellor-inspired rush of activity in the property market, Christmas is actually the time of year where property websites get the most traffic.
That isn’t surprising when you think that people are off work, sitting around with an iPad or smartphone in their hands and that in any given living room there will be someone who isn’t interested in the Boxing Day football, The Gruffalo or Strictly Come Dancing. We get a lot of buyer enquiries during this period, so we have stayed open for the past few years through the festive period to service our sellers and buyers.
It’s of course an exaggeration to say that Christmas is cancelled for estate agents and solicitors (I don’t have the power to do that)! However, with the expected rush of sellers wanting to get to the market as soon as possible to take advantage of the short window of the new Stamp Duty regime, prior to LBTT arriving in April 2015, our clients certainly can’t afford for us to be closed for that whole period.
We’ll make sure that we have a mince pie or two on our desks, but we expect the next couple of months to be very busy indeed.