Derek Mackay, Scottish Finance Secretary announced on 12th December 2018 proposed changes to the tax known as LBTT (formerly Stamp Duty Land Tax) that buyers of non-residential property pay to Revenue Scotland. This is significant to buyers of agricultural property as they pay non-residential rates at completion of a purchase. The proposed changes were approved by the Scottish Parliament on 23 January 2019 and took effect from 25 January 2019.
The main changes that the agricultural sector will see are as follows:
- increase in the upper rate of non-residential LBTT from 4.5% to 5%;
- increase in the Additional Dwelling Supplement (ADS) rate from 3% to 4% (payable on purchases of second residential dwellings over £40,000); and
- increase in the ADS for any residential property purchased by a company from 3% to 4%.
Changes to Non-Residential Rates
For purchases with an effective date on or after 25 January 2019 the non-residential rates of LBTT are as follows:
| Purchase Price | LBTT Rate |
| Up to £150,000 | 0% |
| £150,001 to £250,000 | 1% |
| Above £250,000 | 5% |
To put these rates into context, prior to the changes, a purchaser acquiring 300 acres of bare agricultural land at £4,500 per acre would have a total amount of £51,000 LBTT payable on a purchase price of £1,350,000. However, under the new rates, purchasing the same number of acres, at the same price per acre, would see the purchaser paying £56,000.
Changes to Additional Dwelling Supplement (ADS) Rate
ADS payable on second residential dwelling houses, buy-to-let properties and any residential property purchased by a company has also increased from 3% to 4% from 25 January 2019. This means that if the purchaser also acquires a second residential dwelling (if, for example, the agricultural holding included a farmhouse or cottage and the buyer already owns another dwelling) or the purchase is by a company, the increased ADS rate would apply, making the purchase even more expensive.
The following tables set out how the increased rates will impact on a purchase of an additional farm by an existing farm business where the farmhouse will not be used as the farmer's main residence:
Pre 25th Jan 2019 Rates | Post 25th Jan 2019 Rates | ||
| Purchase price of land | £1,350,000 | Purchase price of land | £1,350,000 |
| Purchase price of farmhouse | £300,000 | Purchase price of farmhouse | £300,000 |
| Total purchase price | £1,650,000 | Total purchase price | £1,650,000 |
| LBTT to pay at non-resi rate | £64,500 | LBTT to pay at non-resi rate | £71,000 |
| ADS to pay on residential element | £9,000 | ADS to pay on residential element | £12,000 |
| Total LBTT and ADS to pay | £73,500 | Total LBTT and ADS to pay | £83,000 |
Transitional Rules and the Effective Date
The contract date and the effective date of the transaction will determine whether the increased rates will apply. Normally the contract date is the date of conclusion of missives and the effective date is the date of completion when the purchase price is exchanged for entry to the farm. The new non-residential LBTT rates and the 4% ADS rate do not apply where a contract for the purchase was entered into prior to 12 December 2018 (the day of the Scottish Budget). However, there has to be a contract in place before Scottish Budget Day - having an option in place is not sufficient. If there is an option contract to buy land which was entered into before 12 December 2018, but the effective date of the purchase when the option is exercised falls after 25 January 2019, the purchaser will have to pay the increased LBTT rates.
LBTT and ADS calculators
Revenue Scotland has amended the LBTT and ADS calculators on its website to take into account the new rates, and the calculators will use the old or new rates depending on the effective date.
It is crucial to have fully investigated the impact of the LBTT rates prior to offering for agricultural property. It will no doubt impact on the price per acre that the purchaser is willing to pay, and, depending on factors such as scarcity of supply, it will remain to be seen how the increased LBTT rates will impact on the price that farmers are willing to pay for agricultural land in Scotland.
For further information on how the rates will affect your business, please do not hesitate to get in touch with your usual Land and Rural Business contact.
