Holyrood set to levy tax on house sales

FAR-reaching powers over the tax on Scottish home sales should be transferred from Westminster to Holyrood, a long-awaited report will recommend tomorrow.

Scotland on Sunday can reveal that the Calman Commission, the independent body set up to examine Holyrood's powers, will call for Stamp Duty to be set by the Scottish Parliament.

Buyers of homes worth more than £500,000 could be hit hard, as Scottish ministers have indicated they would use the power to increase Stamp Duty at the luxury end of the market, adding thousands of pounds to the purchase of a house.

But first-time buyers and those bidding for middle-price homes could see a tax cut if the government is able to find the money to reduce Stamp Duty on cheaper properties.

The moves will form a key element of the Calman Commission's 300-page report, which will also call for Scottish ministers to be given substantial new powers over Scots' income tax rates. Both Prime Minister Gordon Brown and Conservative leader David Cameron are expected to support the commission, which was set up jointly by Labour, the Tories and the LibDems.

Under the proposal, receipts from Stamp Duty on property would be handed straight to Scottish ministers, and not to the UK Exchequer. It would then be up to MSPs to decide how tax should be levied.

The power to control Stamp Duty would give Scottish Ministers another lever over the wider Scottish economy, as rates can be used to stimulate the property market, and to alter the tax burden between the poor and the rich.

High-end estate agents said last night they were "terrified" that the devolution of Stamp Duty would lead to a tax-the-rich policy. Stamp Duty on homes above £500,000 is currently 4 per cent. If Scottish ministers increased that to 5 per cent, the tax on a half-million pound home would rise from £20,000 to £25,000.

Jamie McNab of Savills said: "That could discourage rich people from coming to Scotland with all the economic benefits that they bring. This would be a great opportunity to lower the rate, but it would terrify me if it were put up for higher value properties."

Other homebuilders backed the proposal, saying ministers could set rates of Stamp Duty that reflect the local market and income levels.

However, tax experts warned last night that ministers in Edinburgh would not be able to afford to cut Stamp Duty. Under the commission's proposals, the extra cash from Stamp Duty and income tax would be balanced by a cut in Westminster's block grant to Scotland.

Rhona Irving, the head of tax at PWC Scotland said: "You can say 'let's have lower tax rates' – that's great, but can you actually afford it? Public spending is high here, because we have a large public sector and that would all have to be paid for."

If it was devolved, the SNP could roll out its policy on Stamp Duty, which calls for the duty to be levied in bands in a similar way to income tax.

Currently, somebody buying a home valued at over £250,000 pays 3 per cent Stamp Duty on the entire cost of that property. Stamp Duty is levied at 1 per cent for properties between £175,000 and £250,000.

Under the SNP's proposals, only the part of the price above £250,000 would be priced at 3 per cent. So, for example, a house worth £300,000 would attract £2,250 Stamp Duty. Currently, a home buyer has to pay £9,000 in Stamp Duty for such a house. The cut would be paid for by massive increases in duty for the wealthy.

As well as backing new powers over tax, the Calman Commission tomorrow will also recommend a revolution in the relationship between Holyrood and Westminster.

The report will recommend that Holyrood and Westminster start working together more closely.

In an article for Scotland on Sunday today, former Labour leader Wendy Alexander – who proposed the Commission two years ago – claimed that the report would end the "blame Westminster" culture within Scottish politics.

A spokesman for external affairs and constitution minister Michael Russell last night refused to discuss the Stamp Duty issue, preferring to concentrate on whether the funding formula for Scotland will be reformed.

He said: "If the Barnett Formula is to be scrapped then the only acceptable alternative is full fiscal autonomy for Scotland."