10 years of LBTT

10 years ago today, the first new Scottish taxes for 300 years were introduced.

It was a historic moment – on 1 April 2015, the Land and Buildings Transaction Tax (LBTT) replaced Stamp Duty Land Tax (SDLT) on transactions involving land in Scotland, and the Scottish Landfill Tax (SLfT) replaced the UK Landfill Tax. There was a considerable feeling of relief (for some at least, including the tax authorities) as the first LBTT returns were successfully submitted on Scotland's new online LBTT return system, and the first tax payments found their way to the Scottish Exchequer.

Why were LBTT and SLfT the first taxes to be devolved to Scotland?

LBTT and SLfT were proposed as the first devolved taxes because the subject matter of these taxes is land related. This means that it is very clear whether the Scottish or the UK tax applies, because it is easy to tell whether land is situated in Scotland or England.

What is a fully devolved tax?

LBTT is a fully devolved Scottish tax, which means that the Scottish Parliament has control over all aspects of the tax, including the tax base, as well as the rates and bands of tax. To that extent it is different from Scottish Income Tax, where the Scottish Government controls the rates and bands, but Westminster controls the legislation, the tax base, tax reliefs and so forth. LBTT legislation is passed by the Scottish Parliament, and the Scottish Government does not have to follow changes made to SDLT. The two taxes have diverged since LBTT was introduced and it is likely that they will continue to do so. Changes to SDLT legislation can still have indirect knock-on effects on LBTT due to the way that block grant adjustments are calculated.

New Scottish tax authority

The Scottish Government had decided to set up a new tax authority, Revenue Scotland, to administer LBTT, rather than arranging for HMRC to collect the tax. As well as dealing with the LBTT legislation, the new tax authority had to be set up, the new online computer system had to be designed, set up and tested, and guidance written in time for the 1 April 2015 launch.

The Scottish Electronic Tax System (SETs)

With the advantage of starting from scratch, the SETs online computer system was much simpler and user friendly than the SDLT online system. There was extensive user testing of the system in the run up to 1 April 2015, and many of us can remember time spent at Victoria Quay pretending to submit LBTT returns. It is easier to make changes to SETs than to HMRC's online systems, which can make the process more flexible. Revenue Scotland also have direct control over their website, which means that guidance can be amended more quickly in response to changes in the legislation.

How does LBTT differ from SDLT?

LBTT is similar to SDLT, but there are many significant differences.

• The LBTT charge on leases is based on the rent payable in every year of the lease, rather than just the rent in the first five years as is the case for SDLT. Tenants of leases in Scotland have to submit lease review returns every three years, to report any changes in the rent, and pay any additional LBTT due or seek a repayment from Revenue Scotland. Tenants can reclaim LBTT if a lease is terminated early.

• The rates of LBTT on residential property are much higher than the SDLT rates, and the surcharge for the purchase of second homes, the Additional Dwelling Supplement, is 8% compared to 5% for SDLT.

• There is no general sub-sale relief for LBTT; where A contracts to sell to B, and B contracts to sell (all or part) to C, with the disposition (transfer) going from A to C. Both B and C have to pay LBTT, whereas only C would have to pay SDLT.

• There is a limited LBTT sub-sale development relief if C intends to carry out significant development.

• There are late payment penalties for LBTT, as well as penalties for late submission of returns.

• Multiple dwellings relief is still available for purchases in Scotland, though it was abolished for SDLT on 1 June 2024. This means that the purchase of portfolios of residential property is subject to much lower rates of tax in Scotland as compared to England. That said, its days may be numbered following the announcement of a review of certain LBTT matters at the 2025/6 Scottish budget (see below).

Future developments

The Scottish Government is currently carrying out a review of LBTT, which is intended to lead to recommendations for change to be considered by the next Scottish Parliament following the Scottish Parliament elections which are expected to take place in May 2026.

If you need help with LBTT in Scotland, get in touch with one of our expert corporate tax lawyers.