Holiday lets come in all shapes and sizes, and sometimes, the more unique your property, the more successful it...
With exciting cities, magical islands, wild countryside and fantastic food and drink, Scotland is an appealing holiday destination. And in our Sykes Staycation Index 2018, we revealed that there was a steep rise in bookings to Scotland in 2017, making it an attractive location to buy a holiday let.
However, if you’re considering buying a holiday property in Scotland, there are a few differences in rules and regulations when compared to those in England. To help you understand holiday let legislation in Scotland before you make a purchase, here we take a look at everything from Land and Buildings Transaction Tax (LBTT) to business rates.
When you buy a residential property in Scotland, you’ll have to pay Land and Buildings Transaction Tax (LBTT), not Stamp Duty as in England. You’ll have to pay this if you’re buying a residential property worth £145,000 or more, or £40,000 if it’s a second home.
LBTT was introduced in Scotland in April 2015 to replace the Scottish Stamp Duty Land Tax (SDLT). It is administered by Revenue Scotland, with support from Registers of Scotland.
You’ll have to start paying LBTT for residential property worth more than £145,000. As with Stamp Duty, the rates for this are tiered and fall into different price bands, depending on the price you pay for your property.
So, if you’re buying a property for £270,000, you’d pay 0% for the first £145,000, 2% for the portion of the property that falls into the first taxable band (£105,000, making the tax £2,100) and 5% of the portion that falls into the second taxable band (£20,000, making the tax £1,000) – so £3,100 in total.
As in England, there’s also an additional 4% tax on top of LBTT if you’re buying a second or additional home worth more than £40,000. This is a slab tax – i.e. for the whole price of the property rather than a proportion of it. So, using the £270,000 property price above, if you were buying this as a holiday let, you’d also need to pay LBTT of the price, or £10,800. This would give you a total tax bill of £13,900.
If you’re buying a property for rental in Scotland, business rates are another cost to factor in. Business rates are a tax on non-domestic properties that help to pay for local council services.
If your property is available to let for 140 days or more over a year, you’ll be liable for business rates, as it will be classed as self-catering. This is based on the availability, not the number of days you actually manage to rent the property for.
The way business rates are calculated differs between Scotland and England.
In Scotland, business rates are worked out based on the property’s rateable value, which is calculated by a local assessor based on its estimated open market rental value. To get the rateable value, this is then multiplied by the ‘poundage rate’, which is set by the Scottish government.
In England, business rates are also calculated by the property’s rateable value but this is determined by its open market value (currently from April 1, 2015) based on an estimate by the Valuation Office Agency. This is also then multiplied by a poundage rate, which is set by the government.
In Scotland, you may be entitled to tax relief under the Small Business Bonus Scheme if the rateable value of an individual property is less than £18,000, and you may not have to pay any business rates if the rateable value is less than £15,000.
This compares to the relief rules in England being £12,000 to potentially pay no business rates and a sliding level of relief for properties with a rateable value between £12,001 and £15,000.
If you don’t pay business rates on your property, you may have to pay Council Tax, which is based on the property being a second home. On this basis, a second home is classed as one that is no-one’s main residence but which is occupied for at least 25 days a year.
You may be entitled to a council tax discount for this second home at the council’s discretion. This can be anything from 10-50%, but purpose-built holiday lets should be entitled to a 50% discount.
If you’re looking to convert a property for let in Scotland or to build holiday homes, you should also look into Scotland’s building standards system and planning system as they differ to those in England.
You’ll have to meet the Scottish Building Standard Regulations as set out in handbooks and which is enforced by local government. You can find technical information and more detail on the Scottish Government’s website.
You’ll also have to gain planning permission if you’re building something new and, possibly, if you’re converting a property too. A good idea would be to speak to the local council ahead of getting any designs drawn up so you have a clear idea around what you can and can’t do.
An Energy Performance Certificate (EPC) is a legally required document that measures how energy-efficient your property is. An EPC is required for any domestic or commercial building that is available for buying or renting. The fines for not having an Energy Performance Certificate can amount to £200 per day.
You will need to book an EPC survey in with your local Domestic Energy Assessor or Home Inspector, who will make a visit to your property in order to help calculate your EPC rating. Your energy performance rating is calculated depending on a number of factors, including the type, age, dimensions and heating of your property.
* At the time of posting (31st January 2019), Sykes Cottages has taken all reasonable care to ensure that the information contained in this article is accurate. However, no warranty or representation is given that the information is complete or free from errors or inaccuracies. Generic information is contained within this article and each individual’s financial affairs are different, further advice should be sought.
*Based on a 7 bedroom property in the Lake District with bookings between October 2017 to September 2018.
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