There are many taxes associated with owning or investing in residential property and it is important to understand the impact of these taxes when acquiring property. In addition, what happens if someone does not set out to acquire residential property but becomes the owner of an additional property by way of an inheritance, gift or transfer? In this Blog, we will consider Land and Buildings Transaction Tax (LBTT).
What is Land and Buildings Transaction Tax (LBTT)?
Land and Buildings Transaction Tax (LBTT) is a devolved tax and replaced UK Stamp Duty Land Tax (SDLT) in Scotland from 1 April 2015.
When is LBTT payable?
You may have to pay LBTT if, for example, you buy property or a piece of land in Scotland. The rates of LBTT depend on whether you are dealing with residential or non-residential property.
What are the rates of LBTT?
For residential property, there is a nil rate band threshold of £145,000 (this is increased to £175,000 for first time buyers). If the purchase price (chargeable consideration) exceeds the nil rate band, to calculate the total amount of LBTT due, you will use the tax rates within each rate band and add these together.
The table below illustrates the rates and bands for LBTT for the current tax year.
Residential Rates and Bands, 2023-24
Proportion of consideration in each band Rate
£0-145,000/£175,000 for 1st time buyers 0%
£145,001-250,000 2%
£250,001-325,000 5%
£325,001-750,000 10%
Above £750,000 12%
If I inherit a property that has been gifted or transferred to me, is LBTT payable?
The following quotation is taken directly from Revenue Scotland which succinctly sums up the position for LBTT guidance on the exemption from LBTT of a land transaction with no chargeable consideration, such as the gifting of a property.
"Land or buildings may be gifted or the ownership transferred to another person for no 'chargeable consideration'. This means that no money (or money’s worth) changes hands, and there is no other consideration which has a monetary value. In such cases the transaction is exempt from LBTT. But where a land transaction involves the buyer both being gifted property and assuming existing debt (such as assuming the liability of a mortgage), then the debt assumed is chargeable consideration for LBTT purposes (see LBTT2003)".
Example 1: No Chargeable Consideration
Ross inherits a flat from his late uncle's estate with a date of death value of £250,000 with no mortgage. Ross will not pay LBTT on this gift as no money or money's worth is involved.
Example 2: Residential Property Gifted/Transferred with a small mortgage
Suppose Ross decides to transfer a half share of the inherited flat to his spouse, Lisa and suppose in this example, there was now a mortgage on the flat of £100,000. Lisa therefore assumes half of the mortgage, (£50,000) so essentially a chargeable consideration, however, no LBTT would be payable as the consideration of £50,000 is below the nil rate band threshold.
Example 3: Residential Property Gifted/Transferred with a significant mortgage
Taking the same situation as above but with the property worth say, £500,000 with a mortgage of £400,000. Lisa assumes a beneficial interest of half of the property for no consideration but assumes half of the mortgage (£200,000), LBTT will be payable for the portion of the "money's worth" over and above the nil rate band of £145,000, so on £55,000 which in this case would be at the rate of 2%.
Example 4: Separating/divorcing couples
There is an exemption from LBTT on transfers between legally separating/divorcing couples and applies to transactions under court orders and agreements between the parties (see s 4, Schedule 1, Land and Buildings Transaction Tax (Scotland) Act 2013). So, in the latter part of the example, if Ross were to transfer half of the £500,000 property to Lisa as part of their legal agreement when separating, although Lisa assumes the mortgage, the exemption will apply in this case and no LBTT will be payable.
What are the timescales to pay LBTT and how do I pay LBTT?
As per Revenue Scotland guidance: "If a transaction is notifiable for LBTT, a return must be made to Revenue Scotland. This must be within 30 days of the effective date. The buyer must calculate and pay any LBTT due at the same time as submitting the return".
This service is only for tax professionals. Taxpayers without a solicitor or conveyancer will need to complete a paper tax return.
Everyone's situation will be different and therefore, it is important to seek professional advice before entering into a property transaction.
Our next Blog will focus on the Additional Dwelling Supplement (ADS) which was introduced for property transactions on or after 1 April 2016.
Contributor
Director of Personal Tax
