Understanding Land and Buildings Transaction Tax
If you’re buying or selling property in Scotland, you might have heard about Land and Buildings Transaction Tax (LBTT) and Additional Dwelling Supplement (ADS). But what exactly are they, and how do they affect you? In this article, we’ll break down the basics of LBTT and ADS in plain language to help you understand their implications for property transactions.
What is Land and Buildings Tax (LBTT)?
LBTT is a tax imposed by the Scottish Government on certain property transactions. It replaced the old Stamp Duty Land Tax (SDLT) system in Scotland in 2015. The tax is payable when you buy or lease a property over a certain value. It can also apply in certain transfers of title even where the property is being transferred on the face of it, for no consideration whereby one of the parties is assuming sole responsibility for what had previously been a joint mortgage over the property, common with separating couples.
How is LBTT Calculated?
LBTT is calculated based on the purchase price or lease amount of the property. The tax rates vary depending on the value of the property. There are different bands with corresponding tax rates, similar to income tax brackets.
Here are the current LBTT rates for residential properties:
Up to £145,000: 0%
£145,001 to £250,000: 2%
£250,001 to £325,000: 5%
£325,001 to £750,000: 10%
Over £750,000: 12%
For example, if you buy a property for £300,000, you would pay:
0% on the first £145,000
2% on the next £105,000 (£250,000 – £145,000)
5% on the remaining £55,000 (£300,000 – £250,000)
Who Pays LBTT?
LBTT is typically paid by the buyer or tenant of the property. However, there are some instances where the seller or landlord may be responsible for paying the tax. For example, if the property is being transferred as part of a business transaction or if it’s being gifted.
When is LBTT Due?
LBTT is payable within 30 days of the ‘effective date’ of the transaction. The effective date is usually the date of completion for purchases or the start date of the lease for leases and in transfers of title, the date the property is signed over. It’s important to ensure that LBTT is paid on time to avoid any penalties or interest charges. There can be penalties for failure to make a return on a transaction which meets the threshold for submission, irrespective of whether tax is payable and further penalties for a failure to pay any tax due.
Exemptions and Reliefs
There are certain exemptions and reliefs available that may reduce the amount of LBTT you need to pay. For example, first-time buyers may be eligible for a relief that reduces the tax on properties up to a certain value. Additionally, certain types of transactions, such as transfers between spouses or civil partners, may be exempt from LBTT.
What is Additional Dwelling Supplement (ADS)?
ADS is an additional tax that applies to certain property transactions involving the purchase of additional residential properties. This includes buy-to-let properties and second homes. ADS is payable in addition to the basic rate of LBTT and is calculated at a rate of 6% of the total purchase price.
Who Pays ADS?
ADS is typically paid by the buyer of the additional property. However, there are some exceptions, such as when the property is being transferred as part of a divorce settlement or if it’s being gifted to a family member. It is important to note that married couples and civil partnerships are treated as the same “economic unit” and therefore where one party owns a property, both are treated as the owner of the same for tax purposes. This means you will not be capable of buying a second property and avoiding ADS by keeping your spouse or civil partner off the title to the new property.
It should also be noted that companies acquiring property will always be subject to ADS on their acquisitions, except in very specific circumstances.
When is ADS Due?
Like LBTT, ADS is payable within 30 days of the effective date of the transaction.
Reclaiming ADS
At present where a buyer has acquired a “second property” and paid the ADS at settlement, they may be eligible to reclaim the tax paid, should they go on to sell the property they owned at the time of acquiring the second property giving rise to the liability. They must sell or dispose of their interest in the original property within 18 months of the acquiring the second property.
The 18 month period will increase to 36 months effective from 1st April 2024, this will not however be a retrospective provision and so any transaction settling on or before 1st April 2024 will still be subject to the 18 month timeframe.
Conclusion
Land and Buildings Transaction Tax (LBTT) and Additional Dwelling Supplement (ADS) are important considerations for anyone involved in property transactions in Scotland, especially when purchasing additional residential properties and particularly for those in or thinking of entering the private landlord market. Understanding how they’re calculated and when they’re due can help you budget effectively and avoid any unnecessary complications. If you’re unsure about your LBTT and ADS obligations, it’s always a good idea to seek advice from a qualified legal or financial professional.
If you are thinking of buying property and are interested in finding out more about what liability you may have in respect of Land and Buildings Transaction Tax or Additional Dwelling Supplement, please contact our experienced Residential Conveyancing Team on 01324 622 888 or contact help@randa-fa.co.uk and we would be delighted to assist.
