Scotland’s tax reliefs for property investors and the end of rent controls in Scotland could spur on more landlords to buy properties in the country, according to Scottish agency DJ Alexander.
The end of rent controls in April could see the release of pent-up interest from investors, while going forward rules capping rental increases are set to be more lenient.
In Scotland big ticket investors can benefit from Multiple Dwellings Relief, which is available for purchases of two properties or more in a single or linked transaction, and the Additional Dwelling Supplement, which is usually charged at 8% but does not apply to purchases of six properties or more.
The tax rules could encourage more build-to-rent investment relative to England and Northern Ireland.
David Alexander, the chief executive officer of DJ Alexander Scotland, said: “With the combination of MDR and purchases of six or more properties eliminating ADS this offers a greater opportunity for landlords and investors to buy into the PRS in Scotland.
“With the ending of rent controls this may be the ideal chance for many who have held back from investing in the sector to jump into a market which is experiencing unprecedented demand.
“These tax reliefs could, therefore, provide an ideal opportunity for the PRS to grow rapidly in Scotland to service the needs of thousands of tenants currently unable to find suitable properties.
“These reliefs provide a welcome support for the private rented sector and for landlords and property investors.”
Multiple Dwellings Relief (MDR) works as a partial relief from Land and Buildings Transaction Tax, while it can be used on both residential and non-residential transactions.
Both MDR and the Additional Dwelling Supplement (ADS) relate to transactions with dwellings and additional property that is not classed as a dwelling (i.e. investment properties for the private rental sector).
Where the ADS is applicable, MDR may be available. MDR may also be available on the purchase of six or more residential properties bought in a single transaction even though these are not subject to the ADS and are treated as being non-residential.
As an example, someone buying two properties costing a total of £500,000 would pay £13,500 LBTT and £40,000 in additional dwelling supplement (ADS) totalling £53,500. Assuming each property was worth £250,000 with MDR applied then the costs would be £2,00 in LBTT and £40,000 in ADS totalling £42,000 which is a saving of £11,500.
If six properties are involved in a single transaction or linked transaction, then the savings are even greater as ADS does not apply. Therefore, if a landlord or investor buys six properties at a cost of £1,500,000 as a single or linked purchase then, assuming each property was valued at £250,000, Land and Buildings Transaction Tax would be £63,500 but with MDR this would fall to £6,000 resulting in a saving of £57,500 as the 8% ADS costs would not apply (although would be £120,000 if these levies did apply).
Alexander added: “There is an urgent and immediate need to provide thousands more homes in the PRS and, given the ending of rent controls almost immediately, these reliefs provide financial support to encourage property purchases quickly and efficiently.
“It is to be hoped that these more favourable circumstances will ensure that investors see Scotland as a potentially profitable and viable investment opportunity, and that it encourages them to enter the market at scale in the coming year.
“This provides landlords and investors the chance to come into a market with unprecedented demand at all levels enabling them to buy anything from two homes to multiple properties which should ensure that demand can start to be met in a relatively short time.”