The Land and Buildings Transaction Tax ("LBTT") will replace Stamp Duty Land Tax ("SDLT") in Scotland on 1 April 2015. LBTT is being introduced under the Land and Buildings Transaction (Scotland) Act 2013 ("the 2013 Act"), which can be viewed on the Legislation.gov.uk website.

The proposed rates for LBTT were announced the Scottish Government on 9 October, and it is expected that approval of the proposals will be given by the Scottish Parliament in early 2015.

The tables at the foot of this article show proposed rates for LBTT on residential and non-residential property, and a comparison between LBTT payable on a variety of purchase prices, for both residential and non-residential properties.

There are major differences (as there are under the SDLT regime) between the LBTT rates and bands for residential, and non-residential property, and the purpose of this article is to explain how the 2013 Act defines each category.

The meaning of “residential property” and "non-residential property" for the purpose of LBTT

The key sections of the 2013 Act are sections 59 and 24.

Section 59(1) states that “residential property” means "(a) a building that is used or is suitable for use as a dwelling, or is in the process of being constructed or adapted for such use, (b) land that is or forms part of the garden or grounds of a building within paragraph (a) (including any building or other structure on such land), or (c) an interest in or right over land that subsists for the benefit of a building within paragraph (a) or of land within paragraph (b)".

Section 59(2) states that “non-residential property” means "any property that is not residential property."

Section 24(3)(a) provides that a transaction is a "residential property transaction" if the main subject-matter of the transaction consists entirely of an interest in land that is residential property. Section 24(4)(a) provides that a transaction is a "non-residential property transaction" if the main subject-matter of the transaction consists of or includes an interest in land that is non-residential property. It is significant that section 24(4)(a) uses the term "or includes" whereas Section 24(3)(a) uses the term "consists entirely of".

It should be noted that the reference to "main subject matter" in those two sub-sections of section 24 does not refer to the description of the land or indeed to any buildings, fixtures or fittings that might be erected or located on it. Instead, it refers to the "chargeable interest" that is being conveyed in the transaction. Essentially, this will comprise the "real right" of ownership (or leasehold interest) in the property in question together with any beneficial ancillary right, such as a servitude right of access benefiting the property in question, that might be being conveyed along with it.

For there to be a "residential property transaction" the essential requirement (see section 59(1)) is that there is a building constructed on the land in question that is already suitable for use as a dwelling, or a building that is in the process of being constructed or adapted for such use.

However, it is important to note that where six or more separate dwellings are the subject of a transaction involving the conveyance of a chargeable interest in those dwellings, the dwellings are to be treated as a matter of law, if not actual fact, as non-residential property (see section 59 (8)). So a transaction consisting of a conveyance of a real right in six or more separate dwellings (whether or not located in the same building) will fall to be categorised, and thus taxed, as a "non-residential property transaction". It should be noted that multiple dwellings relief will be available under Schedule 5 of the 2013 Act, but the relief is outwith the scope of this article.

Mixed use development

By application of section 24(3)(a) (see above), the purchase of land comprising a built mixed use development would fall to be regarded as a "non-residential property transaction". The mere fact that some of the buildings located on the land in question were used for purposes other than dwellings would take the transaction into the "non-residential property" category. Put simply, the mixed use element, so far as it was not residential, would mean that the main subject matter of the transaction would not consist "entirely" of a conveyance of an interest in land that is residential property. The sale of undeveloped land that had the benefit of an unimplemented mixed use planning permission would thus fall to be regarded for the purposes of LBTT as a "non-residential property transaction."

Urban land which could have a range of uses

As noted above, the key determining issue is not the potential uses to which the urban land in question might be put but rather whether at the time the transaction takes place the land that is the subject of that transaction qualifies as residential property. The sale of urban land that had a derelict building on it which had planning permission for a range of uses, including residential, would fall to be classified, and thus taxed, as a "non-residential property transaction". This is because the building would not be classed as either being used (or being suitable for use) as a dwelling, nor would it be "in the process of being adapted for such use".

The sale of a cleared brownfield site with a range of potential end uses, including housing, would fall to be classified, and thus taxed, as a "non-residential property transaction".

Undeveloped land being purchased for residential development

If greenfield land is purchased for the purpose of residential development (with or without the benefit of planning permission for housing) that would still be classed as a "non-residential property transaction" because, at the time of the purchase, there would not be a building on the site that is used or is suitable for use as a dwelling, or is in the process of being constructed or adapted for such use. The main subject matter of the transaction would be ownership of what, at that point, would still fall to be regarded as "non-residential property".

Non-residential property purchases: LBTT rates and bands

The proposed rates and bands are as follows:

Click here to view table.

Further information including an example calculation and a tax calculator

Residential property purchases: LBTT rates and bands

The proposed rates and bands are as follows:

Click here to view table.

Further information including an example calculation and a tax calculator

LBTT* on residential and non-residential property purchases - a comparison

Click here to view table.