by Murray Soutar, Partner, Land and Rural Business
Anne Marie Renz, Tax Director, Tax and Private Client
Scottish property has long been popular with foreign investors and there is no sign of this trend losing momentum.
We have acted for a number of overseas investors purchasing Scottish property for a variety of reasons:
There is no restriction on who can own property in Scotland.
Anyone interested in acquiring a property in Scotland should note that is has its own legal system - quite separate and distinct from that in England - and a Scottish solicitor will be required to guide the investor through the purchase process from making the offer to concluding the contract. The key steps in the process are:
Estate Agency: Solicitors often take on the role of estate agents in relation to house purchases. Most residential properties in Scotland are sold by solicitors through a well-established network of solicitors’ property centres in various parts of the country. However, most farms, country estates and larger residential properties are marketed through UK-wide estate agents and other land agents or firms.
The purchase price: In Scotland, properties are usually advertised at a “fixed price” or at “offers over” a certain price. Properties offered at a fixed price are generally sold to the first prospective purchaser to make an offer at the stated price. However, where a property is marketed at an “offers over” price this means that the seller expects to get more than the asking price - sometimes significantly more. The “offers over” approach is typically used where the seller’s solicitor anticipates that the property will generate a lot of interest and expects to receive a number of bids. This contrasts with the situation in England where it is common for properties to be marketed at an advertised price and for sellers to expect offers around that price.
Making an Offer: Offers must be formally submitted by the prospective purchaser’s solicitor to the seller’s solicitor. The purchaser cannot submit a bid directly. If the property has been offered at a fixed price, the seller will usually accept the first offer to purchase at that price. The procedure is different if the property has been marketed at an “offers over” price. In this situation, prospective purchasers note their interest in the property with the seller’s solicitor. The seller’s solicitors will then notify them when a closing date is set for the formal submission of offers. The seller’s solicitor, along with the seller, will consider the various offers received by the closing date and the seller will choose which offer to accept. This will usually, but not always, be the highest bid. The seller is not obliged to accept any of the offers if none are acceptable.
Acceptance: The seller’s solicitor will usually notify each bidder on whether or not their bid has been successful on the same day as the closing date. Once a particular bid has been accepted, under guidelines issued by the Law Society of Scotland, the seller’s solicitor cannot consider any further offers. Therefore, the practice of “gazumping” (ie where the seller accepts one offer then later, before there is a legally binding contract, accepts a higher offer from another person), whilst not illegal in Scotland, is nevertheless a very rare occurrence.
Negotiating the contract: The verbal acceptance by the seller does not give rise to a legally binding agreement. This will not happen until the parties have formally agreed the terms of the transaction. The process for achieving this called exchanging “missives” which involves the exchange of a series of formal letters through which the solicitors acting for the purchaser and seller gradually fine tune the terms and conditions of the contract.
Concluding Missives: When all of the terms, conditions and arrangements for sale have been finalised, missives are said to have been “concluded”. Thereafter, neither party can withdraw from the contract without potentially being held liable for losses suffered by the other party.
Completion: At the date of entry, the document transferring legal title to the property (known as a Disposition) is delivered to the purchaser’s solicitor in return for payment of the price. The purchaser’s solicitor will then arrange for the payment of Land and Buildings Transactions Tax (the Scottish version of Stamp Duty Land Tax) and arrange for the Disposition in favour of the purchaser to be registered in the Land Register.
There are important tax issues to consider before deciding to purchase a property in Scotland and we will look at these in more detail in our next article.
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