THE amount of money raised buy the Scottish Government's Land and Buildings Transaction Tax (LBTT) has failed to reach its official target for residential sales, it has been revealed.

New figures from tax authority Revenue Scotland show that the receipts generated by the replacement for Stamp Duty in the past financial year were £34 million below expectations.

LBTT was introduced in Scotland in April last year and was predicted to raise £235m by this 2016.

However, Revenue Scotland's data shows that only £201 million was collected, a shortfall of £34m and 26 per cent down on the £270m in Stamp Duty collected by HMRC in 2014-15.

The failure to meet forecasts is a source of embarrassment for the SNP, with Ministers previously insisting that the devolved tax, the first to be wholly set and collected in Scotland for more than 300 years, was "well on track" to reach its target.

LBTT makes it more expensive to purchase property with a value above £333,000 compared to the rest of England and Wales, especially the case in the prime market where costs are as much as 90 per cent higher than under the previous system. However, those buying houses under £145,000 pay no tax at all.

Experts have now warned that rates will have to be readjusted if future targets are to be met.

Oliver Knight, Senior Analyst at Knight Frank Residential Research, said: “While the introduction of LBTT in April 2015 resulted in a welcome reduction in purchase costs for a significant number of homebuyers in Scotland, the flipside of this was a substantial increase in taxes for those at the top end of the market.

“Last year, we raised concerns that levying these rates for higher value homes could reduce transaction volumes and ultimately have a negative impact on tax receipts.

"Policymakers may need to consider allowing some room for manoeuver on LBTT rates if they find that they continue to impact on activity at this end of the market, and if they want to hit next year’s forecast of £295 million in revenue.”

The introduction of LBTT sparked a sales surge at the top end of the market, where sellers rushed to beat the 1st of April deadline.

Data from Registers of Scotland shows that 62 per cent of all residential sales above £1m in Scotland in 2015 occurred in the first three months of the year, prior to the introduction of the levy, which increased costs from around £35,000, to more than £78,000.

The Scottish Government's latest draft budget forecasts that LBTT will raise £545 million by 2020-21.

Faisal Choudhry, Director of Scottish Research at estate agent Savills, said: "This is what was expected, because of the shortfall at the top end of the market.

"We saw a surge in sales at the beginning of 2015 as buyers were trying to beat the deadline. But the real problem is that the revenue raised at the lower end of the market is not making up for this.

"The bulk of activity in Scotland takes place below the rate of LBTT, so the amount of additional revenue it will raise is zero."

He added: "It will take some sort of tax rise or adjustment of the rates before this gap is closed."

In comparison to the shortfall on taxes collected on residential sales, those levied on commercial property were greater than expected. Figures show that non-residential revenues totalled £214m against a target of £146m, generating a surplus of £68.2m

Blair Stewart, Partner in Strutt & Parker’s Edinburgh office, said: “The LBTT residential shortfall is significant and highlights a weakness in relying on too narrow a band of high value sales.

"While the commercial LBTT tax revenues came to the rescue this year, the forecast for the next five years is steadily more dependent on high value sales.

"Equally, the end of the year was distorted because significant numbers of people were buying properties before the LBTT surcharge kicked in. This will not be the case in future years.”

The Scottish Government were unavailable to comment.