Land and Buildings Transaction Tax (LBTT).
Date: 01/04/2015 | Commercial Property
Land and Buildings Transaction Tax (LBTT) came into force in Scotland on 1 April 2015, effectively replacing Stamp Duty Land Tax (SDLT). Whilst there are still some limited circumstances in which SDLT will be applicable for transactions, the vast majority of transactions will now invoke an LBTT charge instead.
The main changes are as follows:
- Rates of tax: the commercial rates are: (i) up to £150,000: nil; (ii) £150,001 – £350,000: 3%; and (iii) over £350,000: 4.5%.
LBTT abandons the “cliff-edge” approach of SDLT. Instead, LBTT is charged only to the part of the price over the relevant threshold and up to the next threshold – a so-called ‘slab’ system.
For example: LBTT due on a commercial property worth £500,000 would be:
- 0% for the first £150,000: nil
- 3% for the next £200,000: £6,000
- 4.5% for the remaining £150,000: £6,750
meaning a total of £12,750 LBTT would be due, as opposed to £15,000 SDLT.
- Residential or non-residential rates: if a transaction involves 6 or more residential properties, then this is treated as non-residential property for LBTT purposes and the lower non-residential rates apply.
- Leases: perhaps the biggest change relating to LBTT is the three yearly reviews introduced for leases. Given that leases are generally subject to change throughout their term, whether through a Minute of Variation or a rent review, it was decided that the tax position had to be regularly reviewed so that any changes to the lease were provided for.
A new LBTT return will now need to be submitted every 3 years from the effective date of the lease by the tenant and any additional LBTT paid. A tenant who fails to make an LBTT return is liable to a penalty. A return will also be required when a lease comes to an end; otherwise Revenue Scotland (the tax authority responsible for the collection and management of Scotland’s devolved taxes) will continue to expect these 3 yearly returns.
- Exemptions/Reliefs: the majority of SDLT exemptions and reliefs also apply to LBTT, e.g. group relief and charities relief. However, sub-sale relief has been omitted from the LBTT legislation. It has been replaced with a much more limited form of relief: sub-sale development relief for forward funding of developments.
This provides relief from LBTT to the first buyer where the second of two connected transactions leads to a significant development of the subjects of the second of the land transactions. The two transactions need to complete at the same time. If there is a time gap between the two transactions, you lose the relief. In addition, significant development has to have taken place on the site within 5 years from the sub-sale transaction. Otherwise the relief may be fully or partially withdrawn.