Increasing second home LBTT not economically rational, warns think tank

Increasing the surcharge on land and buildings transaction tax (LBTT) for second and rental homes is not an “economically rational” strategy, an influential think tank has said.

The Institute for Fiscal Studies (IFS) argued the measure, contained in Shona Robison’s Budget plans for 2025/26, would ultimately lead to higher rents for tenants.

The plans increase the LBTT surcharge from 6% to 8% for homes which are not owner-occupied.

The IFS said while the move will encourage owner-occupation, it will make it harder for landlords to sell to other landlords.

It said the increase in the additional dwelling supplement comes on top of a gradual rise in LBTT caused by fiscal drag – with more properties being included than when the tax came into effect in 2015.

Stuart Adam, a senior economist at the IFS, said the Scottish Government’s tax strategy in the Budget is to be welcomed.

He said: “The tax strategy makes the right noises on a range of issues – such as evidence-gathering and engagement, improving administration and public understanding, and considering tax policy in the round – and should be welcomed in the context of the lack of such a document covering taxation as a whole at the UK level.

“It goes beyond the usual refrain of ‘more devolution, please’ to say something at least about policymaking for taxes already devolved to the Scottish Government.

“But it is not a strategy for tax policy. It does not tell us what kind of tax policy the Scottish Government thinks would best promote its objectives; it does not provide a vision of what individual taxes or the tax system as a whole should look like in five or ten years’ time.

“Whoever is in government in Scotland following the 2026 election should publish a strategy early in its term of office that does set a clear direction for policy for the rest of the next Parliament.

“But it is hard to think of any economically rational strategy that would justify recent policy on LBTT, which has made Scotland’s most ill-conceived tax ever bigger and more damaging.”

A Scottish Government spokesperson said: “The Scottish Government has taken a progressive approach to land and buildings transaction tax, prioritising support for first-time buyers and home movers while raising vital revenue to support public services.

“Scotland’s tax policies are grounded in evidence and carefully balance the need to raise revenue with the impacts on taxpayers and the economy.”