The Scottish Government Has Highlighted the Benefits of Buying a Property Portfolio

Thebenefits of buying a property portfolio are pretty great – and this isn’t the first time we’ve written about it! However, we didn’t expect the Scottish Government to help make the argument in favour more compelling!

In their December 2024 budget, amongst all the good-works that would have money spent on them, the Scottish Finance Minister slipped in a two percent rise to Land and Buildings Transaction Tax – or LBTT – on additional dwellings.

For the property investors and buy-to-let landlords this was proof that while the government has been speaking more kindly about the private rented sector recently, they still see the PRS as a cash-pot to be raided.

It’s not all bad news though. There is a way to avoid this egregious tax increase on the PRS and as property professionals we’ll explain how to minimise your tax burden while growing your property portfolio.

For the record – we are not tax accountants – however what follows is fairly straightforward. If you need more information about your tax affairs, speak to your accountant, they’re the experts!

What is LBTT?

Let’s get a definition right from the horse’s mouth. It is a graduated tax levied in Scotland on the price of a property. Below the £145k threshold, no LBTT is payable, above that the exact percentage is determined by the property price.

So far so good – but that applies to residential property. What happens when you buy an additional property, one that won’t be your primary residence? It gets interesting.

Since the budget announcement in December 2024, the Additional Dwelling Supplement (ADS) levied on – strangely – additional dwellings has been set at 8%.

So if you buy a property in addition to your main residence, regardless of the purpose, or if you have a share exceeding £40,000 in a property which is not your main residence, then ADS at 8% of purchase price applies.

ADS was charged at 4% of purchase price in 2019 – it has therefore doubled in less than six years. That represents a significant increase in the cost of doing business for investors and landlords.

There is a way to avoid this additional tax burden if you can afford to buy multiple properties – a property portfolio. Doing so will open up the opportunity to benefit from multiple dwellings relief (MDR).

Multiple Dwellings Relief

Multiple Dwellings Relief allows you to offset ADS when purchasing six or more properties as part of a single transaction.

Revenue Scotlandhas a page dedicated to explaining MDR and how it works, although it looks a bit like a nightmare maths exam at times!

MDR is not a ‘get out of jail free’ card, you’ll still pay some LBTT at the standard applicable rate, but with ADS on a seemingly inexorable upwards trajectory, it represents a significant saving.

In praise of portfolios

Now, most people looking to buy a single additional property, maybe as a long-term investment against their retirement, are unlikely to suddenly decide to buy six properties just to mitigate their tax bill. That’s both fine and sensible.

So, what are the benefits of buying a property portfolio, beyond access to MDR?

Rental income

If one buy-to-let property delivers income, it follows that more BTL properties will deliver more income. Moreover since most property portfolios are sold with sitting tenants, you’ll start earning from day one.

Reduced risk from voids

If you let one property, but it’s currently empty, you have costs, but no benefits. If you own six properties and one is currently void, you still have an income stream to maintain your properties and your business until the empty let is tenanted again.

Bargaining power

Since you’re looking to buy multiple properties in one transaction you – or your agents – may well have more room to negotiate the overall price for the package.

Potential downsides to portfolio purchases

Sadly it’s not all sunshine and roses when buying a property portfolio. More properties and more tenants can mean more headaches.

Cost

It follows, as night follows day, that if one property costs £X, multiple properties will cost multiple £X, and there’s no getting away from that, regardless of how well you negotiate the final price.

Unless you are cash-rich, you’ll have to find specialist financial brokers to assist with mortgages, experienced lawyers to deal with the legal technicalities, and potentially an unrivalled amount of patience!

Portfolio purchases are far from impossible, but they are more complex than buying just one property and you should expect them to try your sense of inner calm to some extent.

Once the purchase is concluded, you need to factor in all the additional maintenance and compliance costs which come with multiple properties.

Finding the right portfolio of you

You aren’t going to happen across a portfolio in the windows of your local estate agent, and if you do you might want to question exactly what it’s doing there.

Fortunately, there are some very experienced professionals out there who know exactly what they’re doing and will be able to put you and a fine profitable future together. There’s a name on the tip of our tongue right now…

Keeping the right company

If you’re about to go from one rental property to many, you’d be well advised to sit down with your accountant and discuss what corporate form is most beneficial for you.

Single property landlords are more often than not sole-traders, but there may be excellent arguments in favour of forming a limited company to manage multiple properties.

We wrote about this conundrum in our article “Should you buy-to-let as a limited company?”, and you may find that useful in the context of a portfolio purchase.

Advice from the property pros

While we will cheerfully admit to a little bias – given who we are and what we do – but there are some serious benefits to be had when investing in a property portfolio; of which avoiding ADS is just one.

We’ve briefly highlighted some of the benefits of buying a property portfolio above, along with some of the possible drawbacks. What we can say is that since the Scottish Government’s announcement last December, we are seeing more activity.

Portfolios are not for everyone; they require a substantial investment and much more day-to-day management, although we suspect many will hand that task off to an agency.

They do however represent a good investment, and as we outlined above, there is a greater degree of income security compared to a single rented property. Remember as well that a portfolio should be enjoying capital growth across several properties.

In summary…

Not for every investor, but potentially very rewarding for those who choose to invest in them, the benefits of buying a property portfolio are manifold.

And the name of the specialists who are ideally placed to help you on this journey just came back to us – it’s Us!

We specialise in investment properties and opportunities, and we have extensive experience of sourcing not just the right portfolio for you but also referring you to highly qualified specialists who can help you with the aspects that we can’t.

Whether you’re an existing landlord looking to expand, or new to property investment but looking to diversify your broader portfolio, get in touch with us. We’ll take the time to show you what’s available and to advise you what might be right for you.

As ever, thank you for reading, and we hope this has proved to be both useful and slightly entertaining!

Written by Chris Wood, MD & Founder of Portolio

Get in touch on 07812 164 842 or email [email protected]