The following information on Land and Building Transaction Tax was contributed by Katharine Smith, Associate at T C Young solicitors.
LBTT is a tax applied to residential and commercial land and buildings transactions in Scotland (including commercial purchases and commercial leases) where a chargeable interest is acquired. The structure of LBTT is designed in a similar manner to Stamp Duty Land Tax (SDLT), which is the LBTT equivalent in England, Wales and Northern Ireland. The percentage rate or each band in LBTT is applied only to the part of the price over the relevant threshold and up to the next threshold.
The rates and bands for LBTT on residential purchase transactions are:
Purchase price of property Rate of LBTT
Up to £145,000 Zero
£145,001 to £250,000 2%
£250,001 to £325,000 5%
£325,001 to £750,000 10%
£750,001 and over 12%
If the purchase price is above the nil rate tax band of £145,000, LBTT is charged at the appropriate rate on the amount of the chargeable consideration within the relevant bands.
Example: a house bought for £280,000 is charged at:
0% for the first £145,000 = £0.00 then
2% for the next £105,000 = £2,100.00 and
5% for the next £30,000 = £1,500.00
so £3,600.00 LBTT must be paid to Revenue Scotland.
Different rates apply for commercial purchases and commercial leases.
In addition to LBTT there are some transactions where additional dwelling supplement (ADS) will also be payable. The ADS applies to most purchases of additional dwellings by individuals in Scotland where, at the end of the day that is the effective date of the transaction, a buyer owns two or more dwellings and is not replacing their main residence. It only applies if the purchase price is £40,000 or higher. It also applies to most purchases of dwellings by non-natural persons (e.g. companies, partnerships) in Scotland.
If ADS applies then it is charged at a flat rate of 3% of the purchase price.
Example: a house bought for £280,000 which is a second home or buy to let investment is charged at:
0% for the first £145,000 = £0.00 then
2% for the next £105,000 = £2,100.00 then
5% for the next £30,000 = £1,500.00
PLUS 3% ADS on £280,000 = £8400.00
so £12,000.00 in LBTT and ADS must be paid to Revenue Scotland.
To calculate the LBTT (and ADS) payable on your transaction, we would recommend that you use the online LBTT calculator using the following link:-
Short duration residential leases in Scotland are exempt from LBTT and ADS. Leasehold titles for residential properties are very rare in Scotland. Most long leases of residential properties will now have been converted to ownership following a recent change in legislation. Transactions as a result of divorce or the dissolution of a civil partnership are also exempt, as are transactions transferring property to a beneficiary in implementation of a will or under the laws of intestacy.
Relief from LBTT (and ADS) is available in a number of circumstances and to a number of bodies. One such relief is known as multiple dwellings relief – this is a form of partial relief from LBTT which ensures that where a taxpayer is buying multiple dwellings in a single transaction, the taxpayer is not taxed at a higher tax band when the transaction involves dwellings which, if bought separately, would fall into a lower tax band. This partial relief ensures that in all cases, a prescribed minimum amount of tax is paid on land transactions involving the acquisition of multiple dwellings.
Full relief from ADS is available for any transaction involving 6 or more dwellings, whether in a single transaction or linked transactions in Scotland. The relief allows those transactions to be treated as being non-residential meaning that commercial rates will apply instead.
Note: The Scottish draft budget for 2018/19 was announced on 14 December 2017 and will be considered by the Scottish Parliament in early 2018 before any legislative changes are introduced. The budget included an announcement that the government wished to introduce a new relief on LBTT for first-time buyers in Scotland which increases the zero-rate threshold from the current level of £145,000 to £175,000.
The buyer’s solicitor will usually submit the LBTT return and pay any tax on behalf of the buyer, however, the buyer remains legally responsible for fulfilling both of these actions accurately and on time, where they are required to do so. Usually the buyer will require to put his or her solicitor in funds for the LBTT (and ADS) in advance of the date of entry.
The buyer must make an LBTT return to Revenue Scotland for a notifiable transaction within 30 days of the day after the effective date of the transaction (i.e. the date of entry). Normally the return will be made much sooner than that to enable the Disposition (i.e. the document which transfers ownership of the property) to be registered. The Keeper of the Registers of Scotland may not accept an application for registration, in any of her registers, of a document effecting or evidencing a notifiable transaction unless an LBTT return has been made to Revenue Scotland and any tax due has been paid. For this purpose, tax is treated as paid if arrangements satisfactory to Revenue Scotland are made for payment of the tax, for example the solicitor has submitted a return and received an acknowledgement.
A buyer who fails to make an LBTT return to Revenue Scotland by the filing date is liable to a penalty. If the return contains an inaccuracy, the buyer may be liable to a penalty. The buyer is responsible for paying any tax due at the same time as the LBTT return for the notifiable transaction is made to Revenue Scotland. A buyer who fails to pay tax prior to the expiry of 30 days after the date payment is due is liable to a penalty. Interest will be charged however on the amount of any unpaid tax from the filing date until the date it is paid.
If two or more buyers are acting jointly, they are jointly and severally liable for the tax although it can be fully discharged by any one of them. A single LBTT return has to be made and all buyers should be included.
A buyer is also required to keep and preserve certain records. A buyer in a land transaction which is not notifiable (e.g. because the purchase price is below £40,000) is also required in some instances to keep and preserve certain records, mostly to evidence that the transaction was not notifiable.
There are some situations when two or more property transactions that involve the same buyer and seller are treated as being linked for LBTT purposes. Two transactions involving the same buyer and seller are not necessarily linked. However, transactions are linked if they are part of a single scheme, arrangement or series of transactions.
Amongst other things, this is an anti-avoidance measure to avoid transactions being artificially split up in the hope of reducing or eliminating the LBTT payable. People connected to a buyer or seller can count as being the same buyer or seller.
Example: A and B structure a purchase from C in such a way that A buys the house and B buys the gardens. These will be regarded as linked transactions. Tax is then charged on the linked transactions as if they were one transaction. The amount of tax charged will be determined by adding together the chargeable considerations paid for both the house and the gardens.
The rules in relation to LBTT and ADS are complex and it is best to seek advice on a transaction by transaction basis.
Katharine Smith joined TC Young in November 2015 and was promoted to Associate in May 2017. She is a key member of the Private Client Department, working closely with the head of department, Isabel Ewing. Katharine specialises in residential conveyancing including purchases (with associated security work) and sales and general title queries. Her in-depth knowledge and practical advice ensure a seamless, hassle free service at what can be a very stressful time. She is able to offer pre-sale advice to clients thinking of putting their property on the market and pre-offer advice to clients looking to purchase a new property. She also advises clients in relation to re-mortgages and transfers of title including those which are a result of matrimonial breakdown, working closely with the family team to ensure each client’s individual needs are met.
T C Young offer a variety of legal services to businesses and individuals and pride ourselves in offering a down to earth, pragmatic approach when dealing with all of our clients. They have offices in Glasgow and Edinburgh and our lawyers represent clients throughout Scotland. The firm has the people, skill and knowledge to deal with a wide range of legal issues. They have a number of lawyers who are accredited by the Law Society of Scotland as specialists in different areas, delivering outstanding legal advice that adds value to everything they do.
The above gives only a brief summary of Land and Buildings Transaction Tax. Please contact our Private Client Department if you’d like to discuss your requirements in more detail.
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Telephone: 0141 221 5562
Fax: 0141 221 5024
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Telephone: 0131 220 7660
Fax: 0131 220 7661
Visit T C Young’s website for further information.