The effect of this increase is to add another £4,000 to the cost of a property purchased for £200,000 – an imposition which may a) scupper the transaction altogether; b) compress net rental yields if it does go ahead, and; c) further limit the availability of rental properties by driving potential landlords away.
John Blackwood, of the Scottish Association of Landlords, did not mince words when he said: “Despite the Scottish Government admitting Scotland is in the midst of a housing emergency, they now go and deal another blow to landlord investors by increasing ADS.
“Instead of encouraging new investment, they seem to be going out of their way to deter investors from buying from the many landlords who have had enough and are opting to sell.”
This sentiment will chime with the many property owners who might previously have been contenders but are abandoning the market, driven out by increasingly punitive legislation, fewer tax breaks, rent controls and the greater attraction of holiday let sites such as Airbnb.
But there is another side to this coin. What waverers should remember is that the fundamentals of the buy-to-let (BTL) market in Scotland remain strong. Here’s why investors should continue to consider this asset class:
1. Strong rental demand: Scotland’s rental market continues to experience robust demand, driven by population growth, urbanisation and lifestyle preferences. Many individuals and families rely on rental housing, ensuring a steady pool of tenants for well-located properties.
2. Long-term capital appreciation: Property remains a tangible and appreciating asset. While the ADS increase affects upfront costs, it does not diminish the potential for long-term capital growth, especially in high-demand areas such as Edinburgh, Glasgow, and Aberdeen.
3. Stable income stream: For investors seeking consistent returns, rental income provides a reliable cash flow. With careful tenant selection and property management, BTL can offer an income source less volatile than many other investments.
4. Diversification benefits: Adding property to an investment portfolio helps diversify risk, balancing more volatile assets like equities. Real estate often performs well during periods of inflation, further enhancing its appeal.
5. Tax planning opportunities: Investors can explore strategies to optimise their tax positions, such as leveraging mortgage interest deductions or investing through limited companies. Professional advice can help mitigate the impact of higher ADS.
While the increase in tax may deter speculative buyers, it opens opportunities for serious investors to acquire high-quality assets with less competition.
Strategic planning is key. And thorough market research, accurate financial forecasting, and professional guidance are more crucial than ever.
Riccardo Giovanacci is Managing Director of Rosevale Letting
Agenda is a column for outside contributors. Contact: agenda@theherald.co.uk
