Scottish Parliament approves LBTT rates and bands

The rates and bands for the new Scottish property transactions tax known as the Land and Buildings Transaction Tax ("LBTT") have been formally approved by the Scottish Parliament.

LBTT will replace Stamp Duty Land Tax (SDLT) on property transactions in Scotland on 1 April 2015, and "Revenue Scotland" will be the tax authority responsible for the collection and management of the new tax. SDLT will continue to apply in the rest of the UK.

The LBTT bands and rates were first announced in October 2014 as part of the Scottish Draft Budget for 2015-16. They were approved on 12 March after a period of parliamentary scrutiny, during which the rates and bands originally proposed for residential property were amended.

LBTT will operate under the basis of a "progressive" system (with different bands of the consideration being subject to LBTT at a different rate), as opposed to the traditional "slab" system under which a single rate is charged on the entire consideration. 

For non-residential property purchases (and lease premiums) any part of the consideration exceeding £350,000 will be charged at the highest rate of LBTT, which will be 4.5 per cent. Under the SDLT regime, the highest rate for non-residential property purchases (and lease premiums) is currently 4 per cent, which is payable on the entire consideration, where this exceeds £500,000. The LBTT rates and bands for non-residential property purchases (and lease premiums) will result in higher charges than SDLT in transactions where the consideration exceeds £1,950,000. For rent payable under non-residential leases, the LBTT rates and bands will be the same as those currently charged under SDLT.

Although, the "slab" system will continue to apply to non-residential property purchases (and lease premiums) under the SDLT regime, George Osborne announced in his most recent Autumn Statement that a "progressive" system of SDLT (similar to LBTT) would apply to residential property transactions in England and Wales with an effective date on or after 4 December 2014. According to media reports, the reaction of the Scottish Government was that "imitation is the sincerest form of flattery!".

Guidance on the rules covering the transition from SDLT to LBTT has been published by HMRC (https://www.gov.uk/government/publications/transitional-land-and-building-transaction-tax-guidance). The general rule is that LBTT will apply to any transaction which triggers a charge on or after 1 April 2015, pursuant to a contract entered into after 1 May 2012. Subject to certain exceptions (including options, pre-emptions, and contracts which have been varied or assigned after 1 May 2012) transactions occurring pursuant to contracts entered into on or before 1 May 2012 will remain subject to SDLT, regardless of the completion date of the transaction. As the tables below illustrate, there are significant differences between the charges payable under LBTT and SDLT so it may be prudent to take specialist advice on the application of the LBTT transitional rules to a particular transaction.

The tables below set out:

  • LBTT rates and bands for non-residential property purchases;
  • LBTT rates and bands for non-residential property leases;  
  • a comparison between LBTT and SDLT payable on non-residential property purchases;
  • a comparison between LBTT and SDLT payable on residential property purchases.

Non-residential property purchases - LBTT rates and bands

The rates and bands are as follows:

Click here to view table.

Residential property purchases - LBTT rates and bands

The rates and bands are as follows:

Click here to view table.

Further information (including an example calculation and a tax calculator) is available on the Revenue Scotland web page below:

https://www.revenue.scot/land-buildings-transaction-tax/tax-calculator/lbtt-property-transactions-calculator

Non-residential property leases - LBTT rates and bands

The following rates and bands will apply to the Net Present Value (NPV) of the rent payable under the lease:

The following rates and bands will apply to any premium payable under the lease:

Click here to view table.

Further information (including a tax calculator) is available on the Revenue Scotland web page below:

https://www.revenue.scot/land-buildings-transaction-tax/tax-calculator/lbtt-lease-transactions-calculator

Non-residential property purchases - a comparison between SDLT and LBTT*

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Residential property purchases - a comparison between SDLT and LBTT*

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*The figures in the comparison tables above are based on the LBTT rates and bands approved by the Scottish Parliament on 12 March 2015, and the SDLT rates as at that date. LBTT was calculated using Revenue Scotland's online tax calculator. SDLT was calculated using HMRC's online tax calculator.