Land and building transaction tax, or LBTT, celebrated its second birthday recently. We’ve heard of the “terrible twos”, when children start to play up and there is a strong case to suggest LBTT is still not adequately toilet-trained and is leaking revenues. “The Scottish Government needs to be less indulgent with its LBTT problem child. It needs to read the parenting manual, and deliver some tough love. We will all benefit.”

LBTT was conceived by John Swinney in October 2014 and his new property transaction tax baby entered the world in April 2015. As the first tax introduced by a Scottish Parliament for over 300 years, LBTT rightly received a lot of attention.

The first year of its life was not good, costing the Scottish Government a lot more than it had thought. The tax did not meet forecast revenue, delivering a residential shortfall of £33 million.

LBTT’s little brother ADS, or additional dwelling supplement, covers second home sales and was introduced in April 2016 by the UK government with the Scottish Government choosing to implement it concurrently. Having two children close together can be double the fun, but also double the pain, and this is not a bad analogy for how LBTT and ADS have got along together.

For 2015-16, little boy ADS was the proverbial “boy with his finger in the dyke”, stepping in like a good little brother and stemming the shortfall, and again in 2016-17 when it accounted for 20 per cent of the total residential LBTT tax abilities.

In spite of this, the Scottish Government is down £82 million on original forecasts after the first two years of LBTT and finance secretary Derek Mackay – who has already reduced estimates for the tax by more than £750m over the lifetime of the current parliament – is now left holding the baby.

Against pre-LBTT 2014 numbers, we estimate that the market has lost around 10 per cent of sales over £425,000. This also appears to be creating a chain effect, with the lower to middle parts of the market slowing given the lack of housing stock coming on to the market in the higher brackets. The Scottish Government’s changes to property taxation has meant that more of its revenues are now dependent on a relatively small number of sales.

While transactions between £145,000 and £325,000 account for over 80 per cent of taxable sales, they contribute less than 30 per cent of revenue. The next price bracket up only accounts for just over 15 per cent of taxable transactions but contributes well over half of the total revenue raised. The top 1 per cent of transactions, less than 500 sales per year, raise more tax for the government than the 31,000 transactions between £145,000 and £250,000.

LBTT provides little to no savings for those buying below £333,000 compared to the old stamp duty and, above that, it’s best described as anything from a disincentive to outright prohibitive. The Scottish Property Federation (SPF) has suggested giving LBTT a little fiscal discipline by adjusting the bands, in particular by widening the band on which 5 per cent is paid from to £500,000 rather than the eye-watering 10 and 12 per cent bands currently set above £325,000. The £750m reduction in forecast over the lifetime of the parliament could have paid for over 1,000 hospital beds in a year.

The changes to LBTT counselled by the SPF, ourselves and many others would be more redistributive, not least because they would see wealthier households actually paying more tax by being more incentivised to buy and sell property.

Dr John Boyle is director of research and strategy at Rettie & Co