Buy-to-let landlords, who include around a third of Scotland’s MPs, face a significant squeeze on their returns following John Swinney’s Scottish budget.

The Finance Secretary said second homes would face an additional 3% levy on top of his new Land and Buildings Transaction Tax, mimicking chancellor George Osborne’s 3% surcharge on stamp duty aimed at the buy to let market. Both new taxes will arrive next April and will add 3% to each band of stamp duty or LBTT.

Swinney told MSPs at Holyrood: “I am conscious of the issue of second homes. We need to ensure that the opportunities for first-time buyers to enter the market in Scotland are as strong as they possibly can be and we need to make certain that tax changes elsewhere in the United Kingdom do not make it harder for people to get on the property ladder.”

Experts said without a so-called ‘copycat’ tax, the Scottish market could have pulled investor money away from the south, reducing the supply for first-time buyers.

Alison Mitchell, mortgage adviser at financial planners Robson Macintosh in Edinburgh, said a buy-to-let investment of £145,000, currently free of LBTT, would now cost an extra £4350. The tax on a property costing £250,001 would rise from £2100 to £9500, while a £325,000 buy-to-let currently attracting LBTT of £5850 would from April have an added levy of £9750, making a total of £15,600.

“Landlords will no doubt be disappointed with yet another hike in costs, and rents could increase as demand yet again outstrips supply on the rental front,” Mitchell said. “This will not help the age-long problem of property shortage. On the other hand, first-time buyers have been given a boost hopefully enabling them to purchase the properties that would have otherwise been snapped up for the BTL/second home market.”

John Blackwood, chief executive of the Scottish Association of Landlords, said: “Landlords have a major part to play in solving Scotland’s housing crisis...the Scottish government should be encouraging more investment by responsible landlords whilst ensuring highest standards are met, instead of seemingly doing everything it can to dissuade them. Reducing investment will only create a space for rogue landlords and letting agents.

“We firmly believe that the biggest losers from today's statement will be tenants who will now find it even harder to get the accommodation they want at a price they can afford.”

Property agents said it would lead to a stampede of buyers over the next few months, to beat the deadline, and then to sellers having to accept lower prices and effectively fund the levy.

Karen Barrett, chief executive of, says extra taxation is “a kick in the teeth for landlords who've already had to cope with the loss of buy-to-let tax relief, which in some cases has already wiped out their profits”. Up until the last Budget, higher earners buying to let had been able to claim tax relief on their mortgage interest payments at their marginal rate of tax, allowing those on higher or top rate to receive 40 or 45 per cent relief respectively. Now a flat rate of 20 per cent will apply, with the higher reliefs phased out over the next 16 months.

“The ultimate goal may be to free up more housing for first-time buyers, but the short term effect may just be rent hikes for those currently renting - or less well-off landlords having to sell up,” Ms Barrett said. “Many pensioners too must be grinding their teeth - with the arrival of pension freedom, using one's pension pot to buy rental property was seen by some as a real alternative to a traditional pension, despite the extra complications and tax issues.”

She went on: “As for how landlords can bounce back from this, the options are pretty limited. One option is to place your property portfolio in a limited company structure. You would then pay corporation tax rather than income tax on your profits, which might serve to offset some of the losses - but your mortgage options will narrow as fewer providers will lend to a company. Another way may be if you have a spouse who pays a lower rate of income tax - you could transfer one or more properties to them. However everyone's situation will be unique, so the best way to meet this new challenge is by talking it over with a financial adviser.”

Rob Burgeman, divisional director at Brewin Dolphin, said: “Landlords are finding it hard to get to grips with the fact that they will be prevented from deducting mortgage interest, which is an expense, from their profits, and will instead be given a 20% tax credit on their eventual tax bill. For higher-rate taxpayers this means effectively paying tax on mortgage interest– in addition to the interest itself- and for many people, this just doesn’t make sense. The death of the buy-to-let investor may be going too far, but the balance has certainly tipped in favour of wealthier investors who do not need a mortgage.”