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Some Taxing Questions for Scottish Property Investment

Posted on Mar 13, 2014 by Jane Ramsay  | Tags: Stamp Duty, Land and buildings transaction tax, tax, property investment, real estate  | 0 Comments

Stamp Duty Land Tax (SDLT) will be replaced with the new Land and Building Transaction Tax (LBTT) from April 2015.  From that date land and property transactions in Scotland will be subject to LBTT irrespective of the outcome of the Independence Referendum.  What will the LBTT change?

LBTT will apply to any residential or commercial land transaction with an effective date on or after 1 April 2015 pursuant to a contract entered into on or after 1 May 2012.  Earlier contracts will generally remain subject to SDLT. 

Whereas SDLT is a “slab tax” where once the price exceeds a particular threshold the whole of the price is taxed at the relevant rate, LBTT will be a progressive tax (like income tax) where slices of the price will be charged at different rates.  This will avoid the sharp increases in tax liability at the current SDLT thresholds.

Although the Land and Building Transaction Tax (Scotland) Bill was passed on 31 July 2013 the tax bands and rates for LBTT are not expected to be announced until September 2014.  There are concerns that the lack of advance notice of these bands and rates could be having an adverse impact on commercial property activity and investment decisions. Some  investors have expressed concern that the LBTT rate may be higher than the SDLT rate for the rest of the UK which could make Scotland a less attractive place to do property business. Clearly the converse may come to pass – in which case LBTT may be a benefit to property investment north of the border. Either way, the current phase of speculation is unhelpful.

LBTT will be a self-assessment tax which will be collected by Revenue Scotland (a new Scottish tax authority) who will work in conjunction with Registers of Scotland to collect the tax, rather than HMRC.  Payment of LBTT will be required prior to registration of the title and so will allow for submission of the LBTT Return, payment of tax and registration of title in one process.

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