Estate agents are urging the Scottish Government to consider extending property tax breaks beyond next Spring to prevent the possibility of the housing market facing a ‘cliff-edge drop’.

They fear that measures being considered by Chancellor Rishi Sunak for his autumn statement in November – including a rumoured introduction of Capital Gains Tax (CGT) on main homes for the first time – could lead to a slump in the market.

Agents want SNP ministers to use the limited powers available to them to the full to help generate continued demand in the industry. 

Earlier this year Finance Secretary Kate Forbes raised the Land and Buildings Transaction Tax (LBTT) threshold from £145,000 to £250,000 to help boost the property market after Covid-19 lockdown restrictions were lifted.

The measure – time-limited until March 31, 2021 when it will revert to its original level - is considered to have contributed to the current boom in sales across Scotland, with estate agents reporting healthy demand and with some buyers prepared to pay near record prices.

However, with the Chancellor looking to claw back some of the £40billion spent by the UK Government during the coronavirus pandemic, estate agents fear the property market is one of the first targets in his sights.

There is growing speculation that CGT could be applied to profits made on the sale of owners’ main homes - rather than just buy-to-let or holiday properties – which could provide up to £26.7billion of untapped income.

Struan Douglas, managing director of Edinburgh-based Solicitors and Estate Agents Purdie & Co, said that hitting homeowners and landlords in the pocket could come at a high price.

He said: “If it is introduced, it will automatically disincentivise people from selling their houses, particularly if their finances have been hit by the effects of Coronavirus.

“The LBTT holiday was intended to kick-start the housing market post lockdown and it has been effective. Imposing CGT on first homes threatens to undo all that good work.

“In those circumstances, the Scottish Government should think long and hard about using all the tools at its disposal to ensure the market doesn’t suddenly fall off a cliff edge at the end of March.”

Mr Douglas said raising CGT rates on second homes, unless introduced immediately, could lead to a sudden flood of properties to the market as homeowners look to cash in before they are stung by the upper rate.

He said: “If those with second homes are to be hit hard by a rise in CGT and they do end up having to sell, it could create a shortage of properties available for rent and increase rent for residential tenants - which doesn’t seem very fair on those who are struggling to get their foot on the first rung of the property ladder.

“In recent years, second home buyers have already been made to pay an additional dwelling supplement for LBTT when buying and having to additionally pay more when selling would be a double whammy.

“It remains to be seen what will happen with the property market in Scotland. Governments both north and south of the border need to balance revenue generated from any new or increased tax against that which may be lost as a result a slowdown in the property market caused by new measures that may create fewer transactions overall.

“I appreciate that the UK Government needs to recoup some of the money it has had to spend getting us through the pandemic, but it should consider whether the revenue it stands to gain from house sales and purchases in a free-flowing market will be more or less than that generated by taxing home owners more on a sale, which may simply cause a slowdown in transaction numbers.

‘Ministers also need to consider residential tenants and not make their position worse than it already is.”