A sudden rise in the number of farms in Scotland could be on the cards as savvy rural homeowners discover a loophole in the new transaction tax.
Tens of thousands of pounds could be saved from the price of buying a home if the property is reclassified as a farm according to property experts.
The new Land and Buildings Transaction Tax (LBTT) comes into effect on Wednesday replacing Stamp Duty and will see homes subject to 10 per cent tax for the portion over £325,000.
Because farms could be classed as non-residential they would be subject to less than half that – just 4.5 per cent for the portion over £350,000.
Rural homeowners looking to sell up would only have to meet certain criteria – such as having outbuilding and generated money and keeping animals like chickens.
While those who let out land around their property – for example by charging someone to keep a horse on the land – could also get their home reclassified.
David Strang Steel, partner at estate agent Strutt & Parker, said: “I would consider the general rule to be that mixed-used transactions fall within the ambit of a non-residential transaction, and so would be charged at the non-residential rate and not apportioned.
“If a farm worker’s cottage was sold as part of a farm, it would fall within non-residential use and attract non-residential rates.”
He added: “Obviously the difference in classification can mean quite a lot to a buyer.
“If one was to have a large house with 20 acres that was on the market for £1,200,000 the LBTT would be £102,350 whereas a farm being sold for £1,200,000 would have LBTT of £44,250 – a saving of £58,100.”
Evelyn Channing, director of rural sales at Savills, said: “It is a grey area, but what we need is for people to try it.”
A Scottish Government spokeswoman said each case would depend on the facts and circumstances.
“Our tax decisions have been driven by the principle that taxes should be proportionate to the ability to pay,” she said.
