Scotland tests its fiscal powers with property tax revamp

Scotland has sharply increased taxes on expensive property purchases while cutting them on modest homes, as the nation set its first independent tax rate in three centuries just three weeks after Scots rejected independence.

Buyers of Scottish properties costing less than £324,000 will save money from April, when the UK stamp duty is replaced with a progressive property transaction tax. But a marginal top rate of 12 per cent means homes worth £1m or more will pay tens of thousands of pounds extra. The UK’s top rate is 7 per cent on the whole purchase price for properties worth more than £2m.

The new taxes on residential and business property and waste landfill unveiled on Thursday are the first steps taken under fiscal powers already devolved to Edinburgh in 2012. They also mark the first setting by Edinburgh of a national tax rate since the “cess land tax” in 1706, the year before Scotland’s political union with England.

The Scottish National party has used the tax change to signal its seriousness about addressing wealth inequality, a central theme of its failed campaign for independence ahead of last month’s referendum and one that it argues shows Scotland has very different priorities from Westminster.

“Our progressive approach ensures the tax paid on property transactions is more closely aligned to the ability to pay,” said John Swinney, finance secretary.

Under 2012 legislation, Edinburgh will also gain control in 2016 of 10p in the pound of the income tax raised in Scotland and will be able to borrow directly from capital markets.

But such powers are now seen as a prelude to wider devolution promised by the big pro-union parties before last month’s referendum, with the Conservatives and Liberal Democrats both committed to transferring full control over income tax bands and rates.

Mr Swinney said 90 per cent of residential property transaction taxpayers would be better or no worse off than under stamp duty, but his progressive bands drew protest from Gavin Brown, a Conservative member of the Scottish parliament.

“How can the cabinet secretary justify an eye-watering 10 per cent [marginal] tax on houses over the value of £250,000?” Mr Brown asked, arguing that in certain areas “family homes, for hard-working families, cost far more than that”.

Paul Gallagher, tax partner at EY Scotland, equated the Scottish move with Lib Dem proposals for an annual “mansion tax” on expensive properties, adding that it could “tighten the screw on the so-called squeezed middle”.