Navigating the world of property transactions can feel overwhelming at times, especially when it comes to understanding the tax implications involved. In Scotland, the Land and Buildings Transaction Tax (LBTT) is the key player in this arena, replacing the UK Stamp Duty Land Tax (SDLT) from April 1st 2015.

LBTT operates on a system of thresholds and bands, ensuring that the tax levied is proportionate to the property price. It’s important to note that if the property you’re purchasing falls below the threshold, you won’t be liable for LBTT. This approach means that different rates and bands apply to various property types and buyers, for example, most buyers to date have enjoyed exemptions for residential properties with a purchase price of up to £145,000.

However, additional considerations will come into play for properties like second homes, where additional charges may apply. Calculating LBTT is typically made easier with the use of online calculators, which factor in property value, type, and any relevant supplements. Your Solicitor/Conveyancer will be able to give you an accurate figure of payable LBTT in order to avoid any confusion or miscalculation if you are unsure. This is often a cost that many purchasers overlook when budgeting as they are unaware of the implications.

Having been in place since 2015, new LBTT regulations have been brought into force from 1st April 2024. Further to a Consultation in 2023, the Scottish Government has released its formal update on Land and Building Transaction Tax (LBTT), alongside new draft legislation.

Replacing a Main Residence
Notably, changes will be made to the way in which the Additional Dwelling Supplement (ADS) is applied. A 6% ADS will now be charged to anyone buying an additional residential property anywhere in Scotland, such as a second home or residential buy-to-let property.

A buyer moving between properties now has to sell their former home within a specified period after buying their new home in order to reclaim the ADS which may be incurred as an overlap. ADS may also be avoided where a new main residence is acquired within a specified period after selling a previous main residence. In both cases, the specified period has been extended from 18 months to 36 months for transactions completed on or after 1st April 2024. This will bring Scotland broadly in line with time periods that apply in England, Northern Ireland and Wales for the replacement of a main residence.

Small Shares in a Property
Previously, the full value of a property that you owned was counted as ownership of another dwelling for the purposes of calculating ADS due, regardless of the share of that property that you owned. This has now been changed so that only the value of your share of the property you own will be taken into consideration. If the value of your share is under £40,000 then that will not be considered ownership of another dwelling for the purposes of ADS.

Inherited Dwellings
If a buyer inherits a property between concluding the contract for the purchase of a property and completing that purchase of their new main residence, the inherited dwelling will not be counted towards the number of dwellings owned for the purposes of calculating ADS. The inherited dwelling may still be counted towards the number of dwellings owned for future purchase transactions, however.

Divorce or Separation
From 1st April 2024 there will now be a Divorce and separation exception if the following conditions are met:-

• Two dwellings are owned at the end of the effective date (i.e. the date the new property is purchased), and
• The first dwelling was at any time the buyer’s previous main residence, with a spouse, civil partner, former spouse, or former civil partner, and
• The first dwelling remains the main residence of the buyer’s spouse, civil partner, former spouse, or former civil partner and there is no intention to reside together again as civil partner or spouse, and
• The ownership retained in the first dwelling is as a result of a court order or former agreement in connection with a dissolution or annulment of the civil partnership, separation or divorce.
  In cases where the above criteria are met, the first dwelling is not considered a dwelling owned for the purposes of calculating ADS.

For further information on the recent LBTT changes please contact;

Sarah Wyllie
Senior Solicitor
Email: swyllie@gilsongray.co.uk