Land and Buildings Transaction Tax in Scotland

Land and Buildings Transaction Tax in Scotland

Published:

Author: Robin Mitchell

The Scottish government has announced the proposed tax rates for its Land and Buildings Transaction Tax (LBTT).

LBTT is proposed to replace Stamp Duty Land Tax (SDLT) in respect of the sale or lease of land in Scotland and comes into force on 1 April 2015.

LBTT is structured differently to SDLT in that slices of the price will be charged at different rates (similar to income tax) instead of the whole price being taxed at the same rate, as is the case with SDLT.

With LBTT, the higher rate will only be charged on the amount above the threshold.

The new tax rates

The new rates for commercial purchases and premia payable on leases are:

Purchase price/premium   LBTT rate
Up to £150,000 0%
Above £150,000 to £350,000 3%
Above £350,000 4.5%

The new rates for commercial leases are, as with SDLT, based on net present value and are:

NPV of rent payable LBTT rate
Up to £150,000 0%
Over £150,000 1%

The new rates for residential purchases are:

Price LBTT rate
Up to £135,000 0%
Above £135,000  2%
Above £250,000 to £1m 10%
Above £1m 12%

The result of the changes is to reduce SDLT payable on commercial purchases under £1.95m and residential purchases under £324,280, but to increase the tax burden above those levels.

Timing

Although SDLT will apply to matters completed until 31 March 2015, LBTT is relevant to transactions being negotiated and concluded now with completion dates on or after 1 April 2015. In relation to existing contracts, those which were entered into prior to 1 May 2012 will remain subject to SDLT and not LBTT.

Leases

The charging structure of LBTT on leases is similar to SDLT in that it will be charged on the basis of any capital payment and the net present value of rent. However, in a significant departure from the SDLT rules, a deposit payable in connection with any new lease or assignation will be treated as part of the consideration if it exceeds twice the rent. As such, a relevant deposit paid to a Landlord as part of an assignation transaction will need to be considered within the sphere of LBTT in addition to any payment due to the assignor.

There is also a noteable change in the assessment of tax due. LBTT introduces continual assessment by placing an obligation on tenants to submit LBTT returns every 3 years. Any additional LBTT which is payable as a result of an increase in rent is to be paid at the time of submission of the return. This will cause administrative demands on tenants and their agents instead of the current SDLT scheme which requires only one return that assesses up to the end of year 5 of a lease.

Reliefs

Reliefs and exemptions under LBTT are expected to be the same as those under SDLT, with the exception of sub-sale relief. However, the Scottish government intends to introduce targeted relief for development projects. Licences are generally exempt under LBTT, however, it is anticipated that properties such as airport concessions and shopping centre kiosks will be subject to LBTT in the future.

Payment of tax

In practical terms, LBTT will be payable to Revenue Scotland, who will work alongside the Registers of Scotland. Submission of the return is a pre-requisite to registration of title, which should hopefully make for a more streamlined process.

Any questions.?

It will be noted that as well as changes in the amounts of tax payable, there will be significant administrative issues and new processes to be adopted.

Please refer any queries about LBTT or forthcoming changes to the land registration system to your usual contact at Shoosmiths' Edinburgh office, who will be delighted to assist you.