Highest rate band for commercial property announced as 4.5%

John Swinney, the Scottish government's Finance Secretary, has announced the proposed rates and bands for the new Scottish property transaction tax known as the Land and Buildings Transaction Tax (LBTT).

On 1 April 2015, LBTT will replace Stamp Duty Land Tax (SDLT) on property transactions in Scotland, and a body called Revenue Scotland will become 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 proposed bands and rates were announced as part of the Scottish Draft Budget for 2015-16, and will now be subject to parliamentary scrutiny, along with all other elements of the Draft Budget.

For commercial property purchases (and lease premiums), the proposal is that 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 commercial property purchases (and lease premiums) is 4 per cent, which is payable on the entire consideration, where this exceeds £500,000. The proposed LBTT rates and bands will result in higher charges than SDLT in transactions where the consideration exceeds £1,950,000. For rent payable under commercial property leases, the proposed LBTT rates and bands are the same as those for SDLT.

LBTT on commercial property purchases (and lease premiums) will operate on a different basis to SDLT, and will be calculated in a similar manner to income tax. This means there will be progressive rates of LBTT, with different bands of the consideration being subject to LBTT at a different rate.

Detailed transitional rules and guidance have not yet been published, but 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 on or after 2 May 2012. Transactions occurring pursuant to earlier contracts will generally remain subject to SDLT.

The Scottish government intends to formally introduce rate-setting Orders and seek the Scottish Parliament’s approval of the proposals in early 2015, after considering the findings of the parliamentary scrutiny process.

The tables below set out:

  • the proposed LBTT rates and bands for commercial property purchases
  • the proposed LBTT rates and bands for commercial property leases, and
  • a comparison between LBTT and SDLT payable on commercial property purchases.

Click here to view table