SURVEYORS have called for urgent reform of Scotland's new property tax saying it has placed the nation's housing market into the doldrums.

It comes as the latest Royal Institution of Chartered Surveyors (RICS) residential survey claimed that the Scottish property market was stagnant in July with a fall in the number of new instructions while warning that the Land and Buildings Transaction Tax (LBTT) was continuing to blight the sale of higher end homes.

Estate agents said many people considering moves in Scotland are instead making improvements to their own homes due to a limited choice of properties for sale.

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Critics say the tax can see an extra £45,000 added to the cost of a £1m home if the property is bought in Scotland rather than England.

HeraldScotland:

LBTT was introduced in 2015 after powers over stamp duty were devolved and became the first domestic tax charged in Scotland in more than 300 years.

But it has failed to deliver the money the Scottish Government was expecting.

Official figures analysed by the Scottish Property Federation (SPF) found that LBTT generated revenues of around £481 million in 2016/17, almost £57 million below the Government’s forecast.

May saw revenues from LBTT fall £3.2m to £43.5m compared to April 2017.

In March it emerged that a downturn in sales had left a £100 million black hole in Scotland's public finances.

In 2015, the government estimated LBTT, the devolved replacement for stamp duty, would raise almost £1.8bn between 2017-18 and 2020-21 from residential sales. This was later revised down by £833m to £962m, a drop of 46 per cent.

The RICS believes the effect of land and buildings transaction tax (LBTT) bands have discouraged people from selling in some areas.

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Hew Edgar, RICS's Scotland policy manager said: “This latest survey merely reinforces what we have been saying for some time – that the current LBTT bandings are creating a bottleneck in certain areas of the market, and encouraging property owners to eschew moving in favour of improving their current properties.

“The Scottish Government must address this problem by reviewing the LBTT framework and putting in place a structure that would inject some much-needed fluidity into the market.”

Official figures show property transactions in the top half of the housing market have gone south since the tax was introduced. Some estimates say Scotland's housing market has lost a minimum of 10 percent of sales of homes valued at more than £425,000, which attract LBTT of 10 per cent.

In May the Council of Mortgage Lenders (CML) revealed the number of home movers in Scotland had dropped by eight per cent compared with the same period last year.

But while the housing stock in Scotland's two largest cities has dwindled, property prices have risen as competition intensified for fewer homes.

The latest RICS residential survey found price growth across the UK fell from +7% to +1% in July, the softest reading since 2013.

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Homes at the top end of the market, those listed at more than £1 million, saw the greatest change in agreed prices, with 68 per cent reporting sale prices coming in below the asking price. Whilst the RICS said that this is not uncommon in a flatter market, 33 per cent of those surveyed said the agreed price was up to five per cent below the asking price and 26 per cent reported between five per cent and 10 per cent under.

Grant Roberston of Glasgow-based Allied Surveyors said: "Shortage of stock remains the overriding issue with the market and there seems to be no let up on that."

Under LBTT, property buyers are charged a per centage based on sale value, starting from £145,000. The levy is two per cent on purchases between £145,000 and £250,000; five per cent between £250,000 and £325,000; 10 per cent between £325,000 and £750,000 and 12 per cent on properties costing more than £750,000.

Buyers of holiday homes, buy-to-let properties and any other second homes pay an extra three per cent tax upfront, in addition to any other LBTT due.

Some housing market experts have said they believed widening the middle band of LBTT would have a “significant” impact on the property market and would increase government revenue.

RICS chief economist Simon Rubinsohn said that the "most worrying aspect" of the survey was that the slipping of house sales could continue "for some time to come".

"Lack of new build in the wake of the financial crisis is a fundamental factor weighing on the market. And there are some very real consequences for the UK economy from all of this, including the impact on the ability of people to be mobile when looking for work.

“The flatter trend in price growth is arguably a silver lining but there is no real indication that the housing market will become materially more affordable anytime soon.”

Although Derek Mackay, the finance secretary, indicated in June that he might be willing to consider reforming LBTT rates, the Scottish Government would not discuss the possibility.

In response to the RICS's calls, the Scottish Government continued to support the tax saying that it is "more progressive" than the Stamp Duty it replaced and that it "benefits the vast majority of homebuyers".

A Scottish Government spokesman added: "Since the introduction of LBTT, 93 per cent of taxpayers have paid either less tax compared to SDLT or no tax at all. “We will continue to monitor all parts of the market closely. More generally, we have committed continuing with our shared equity programmes which will enable more people to realise their dreams of home ownership.”