Stamp Duty in Scotland

LBTT: Stamp Duty in Scotland

The Land and Buildings Transaction Tax (LBTT)1 is a tax on the purchase of land or property in Scotland. It replaced the Stamp Duty system in Scotland as of April 1, 2015. It means that you will be paying LBTT when buying any commercial land or residential property. It’s the country’s replacement for stamp duty. Instead of taxing transactions on the value of the property, it taxes them on their purchase price. It means that people will be less inclined to buy more expensive properties just because they are less taxed than cheaper ones.

It is considered one of the most important tax reforms since devolution, given its potential impact on housing affordability. With rates varying depending on the type of purchase, it charges an extra 0.25% when buying residential properties worth more than £325,000 (£250k under LAMDA). The rate rises gradually until it reaches 12%. There’s no further increase in purchase price tag or value, which may be higher still if you are looking at commercial land.

First-Time Buyers LBTT Rates

A first-time buyer will not be liable for LBTT on the house up to the value of £180,000. From April 2019, any properties sold to people who have never owned a home in Scotland before qualifying for tax exemptions worth as much as £14,400, including buying and selling residential property. A first-time buyer is also defined as someone who has not been a homeowner in the last three years.

LBTT also applies differently depending on whether you are buying an improved or unimproved piece of property.

First-Time Buyer Relief Will Operate as Follows: 

  • A property with less than three bedrooms OR one bedroom more than it needs to meet the needs of a first-time buyer, and their spouse or partner is exempt from LBTT if occupied by those purchasers. The value threshold below which this exemption applies will increase in line with CPI over the lifetime of this parliament, but at least £300,000
  • If unoccupied when purchased, an FTB purchaser must occupy it within six months. Otherwise, they may need to pay LBTT on any future sale subject to some exceptions
  • If the FTB purchaser sells their home in less than five years, they will need to pay LBTT on any profit made at that time, subject to some exceptions

This measure only applies where a property is sold for its total market value and does not apply if an individual exchanges one property with another as part of a share swap arrangement or inheritance settlement. It means that properties purchased under shared ownership schemes may still be liable for LBTT on sale. However, this would depend upon whether there had been changes in circumstances such as an increase in income over those five years, which might change eligibility for Relief from Land and Buildings Transaction Tax2 (LBTT).

Home Movers LBTT Rates

Suppose you already own a property that you’re selling to move to a new one or have ever owned a property. In that case, you’ll pay the regular LBTT rates assuming the property you’re purchasing is the only one you own at the time. If the property costs more than £145,000, the LBTT would be applied. You’ll pay different percentage rates on other portions of the tax because it’s a tiered system.

Buy-to-Let LBTT Rates

The Scottish Government has introduced a new LBTT on buy-to-let and second/holiday homes that have been in forced last April. The tax is being established to help tackle excessive land prices and help make buying more affordable for first-time buyers. It would also act as an incentive to the private sector to build houses rather than invest heavily in buy-to-let properties. Still, some feel that this could result in less investment overall. It means that on top of the regular LBTT prices, you’ll be paying an additional 4%.

Paying LBTT

Within 30 days of the sale’s completion, you’ll need to file an LBTT return with Revenue Scotland to pay your LBTT. The sum due must be paid at the same time as the return is filed. You will be charged a penalty if you do not pay on time, and your order will not be reported until payment is received. Returns may be submitted electronically or by mail. You can use BACS/CHAPS and faster payments or direct debit.

Common Questions

Has Scotland Reduced LBTT?

Does Stamp Duty Apply in Scotland?

How Can We Avoid LBTT in Scotland?

Is There Stamp Duty on Land in Scotland?

In Conclusion

The Land and Buildings Transaction Tax in Scotland is a local tax introduced on April 1, 2015, to replace stamp duty land tax from England, Northern Ireland, Wales, and Scottish Landfill Tax. It can be charged at different rates depending on how much you pay for your property. You must additionally have a residential interest in the property before being liable for paying LBTT; other types of investments such as buy-to-let will not be subject to this charge.

The main difference compared with Stamp Duty applies only if you’re buying all the building. Still, LBTT applies to any purchase, whether it’s a whole building or part of one.

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