The Scottish Property Federation (SPF) has called for the 5 per cent threshold of residential LBTT to be raised to £500,000 in the light of evidence suggesting a downturn in the value and number of transactions in the first year of the Land and Buildings Transaction Tax (LBTT).

The call is made in the industry body’s submission to the Scottish Parliament’s Finance Committee inquiry into the first year operation of LBTT.

In its response, the SPF said that the main impact has been at the high value end of the residential market (above £325,000) where both the value and number of transactions fell after several years of growth.

According to the SPF, the shortfall in anticipated LBTT revenue from the residential sector has had a negative impact on the functioning of the wider residential property market in Scotland, which requires buoyant activity across all tenures at all levels in order to succeed.

The commercial property market, which saw much less radical reform of rates and thresholds, produced more revenue than expected, it said.

David Melhuish, director of the Scottish Property Federation, said: “While the tax seems to have bedded in well for much of the lower value markets we feel there are improvements to the rates and thresholds for the residential 5 per cent band in particular, which is very narrow under the current regulations.

“In the residential market, we need to ensure buoyant activity across all tenures. People need to up-size and downside as well as relocate for work or other reasons. If you make it harder for people to move at the higher end of the market, then it makes it more difficult for people aspiring to move into that market. This then makes is more difficult for people to get a foot in the housing market at all if the number of properties available is reduced.”

In addition, the SPF commended the Scottish Government for taking the decision to remove larger scale PRS investments from the scope of the 3 per cent Additional Dwellings Supplement and called for the Scottish Government to maintain its current competitive transaction tax edge within the UK for commercial property investments.

Mr Melhuish added: “We are competing for global sources of capital and in this context it is important we have a competitive commercial LBTT tax position to support the attractions of our local cities and towns as locations for investment.

“The relief for large-scale PRS investors for transactions is also a welcome move that is helping our industry to shape a positive perception of Scotland as a place to do business, as well as encourage the development of new, purpose-built rental homes.”