Scottish Government exceeds LBTT revenue forecast, but uncertainty hits commercial returns

Annual revenues from the devolved Land and Buildings Transaction Tax (LBTT) exceeded the Scottish Government’s 2017/18 forecast, according to new figures released by Revenue Scotland and analysed by the Scottish Property Federation (SPF).

LBTT generated £568.9 million between April 2017 and March 2018, 12 per cent more than the government’s expected revenue of £507 million (as set out in the 2017/18 draft Scottish Budget).

The 2017/18 revenue is in stark contrast to the previous year’s (2016/17) revenue of £468.6 million, which undershot Scottish Government estimates by some £69 million.

LBTT revenue from residential sales were the biggest factor behind the increase in LBTT revenue.

Tax take from home sales totalled £260.4 million, some 23 per cent more than the forecast of £211 million. Revenues increased steadily to a peak in August 2017, when they levelled out at sums consistently higher than the previous year.

The Additional Dwellings Supplement (second home tax) also significantly exceeded government expectations with provisional revenues of £107.3 million, nearly 50 per cent above expectations.

However, revenue from commercial transactions ended 10 per cent below Scottish Government estimates – despite sizable spikes in revenue figures in November and December last year, the annual figure reflects the fragility in the commercial market and wider economy. This meant that the Scottish Government fell £22.9 million short of its forecast of £224 million for commercial LBTT.

Significantly, the Scottish Government expects to see LBTT bring in £588 million in 2018/19 - £19.1 million (3.5 per cent) more than was generated in 2017/18.

Reacting to the new LBTT data, David Melhuish, director of the SPF, said: “After falling considerably short of forecasted LBTT revenues in 2016/17, the Scottish Government will no doubt be relieved that 2017/18 saw revenue exceed forecasts.

“While the residential market has seen a strong year, the commercial market remains subdued in Scotland, which led to lower than expected commercial LBTT revenue. It is important that the Scottish Government continues to make the Scottish economy as competitive as possible and give businesses the stability they need.

“Looking ahead, the Scottish Government is counting on LBTT to generate £588 million in this current fiscal year (2018/19). Most of the increased revenue expected to come from the residential sector, with expectations that revenue from house sales will be £45 million (17 per cent) higher than in 2017/18. However, with reports of fewer houses being brought to market, there remains a question over the ability of the market to deliver the increased transactions needed to meet this forecast.”