Residential property
17 Dec 2018 News

Scottish Budget 2018: Higher LBTT Liabilities for 2019?

A number of changes to Land and Buildings Transactions Tax (LBTT) were announced in the Scottish Budget on 12th December 2018.  There are 3 key proposals:

  • Non-residential property purchases: A change to the tax rates and bands.
  • Additional Dwellings Supplement: An increase in the rate from 3% to 4%.
  • Reliefs for Property Authorised Investment Funds (PAIFs) and Co-owned Authorised Contractual Schemes (CoACS).

 Non-Residential Transactions

The purchase of non-residential property is currently subject to LBTT at 0% on the first £150,000 of the price, 3% on the next £250,000 (the lower rate band) and 4.5% on any element of the price exceeding £350,000 (the upper rate).

The Scottish Budget proposes to alter these rates and bands by reducing the lower rate tax from 3% to 1% but, at the same time, reducing the lower rate band from £200,000 to £100,000 and , in addition, increasing the upper rate from 4.5% to 5%.  These proposals, if approved by the Scottish Parliament, will take effect from 25th January 2019.  However, contracts concluded prior to 12th December 2018 will continue to be taxed at the current rates. 

A comparison of the current and proposed tax rates and bands are summarised below:

Band

Rate

£0 - £150,000

0%

£150,001 - £350,000

3%

Over £350,000

4.5%

Band

Rate

£0 - £150,000

0%

£150,001 - £250,000

1%

Over £250,000

5%

The change in rates will effectively mean an increased LBTT liability for all non-residential purchases for a price in excess of just under £360,000.  The following table gives an indication of the size of the increased LBTT liabilities that purchasers of non-residential property can expect from 25th January next year:

Purchase Price

Current Rates

Proposed Rates

Increase in LBTT

Percentage increase

£360,000

£6,450

£6,500

£50

0.78%

£500,000

£12,750

£13,500

£750

5.88%

£1,000,000

£35,250

£38,500

£3,250

9.2%

£2,000,000

£80,250

£88,500

£8,250

10.3%

£5,000,000

£215,250

£238,500

£23,250

10.8%

The Budget changes will result in a substantial increase in LBTT liabilities for most purchasers of non-residential property.

Additional Dwellings Supplement

The Additional Dwellings Supplement (ADS) was introduced in April 2016 with the objective of charging a supplementary amount of LBTT on the purchase of, mainly, second homes and buy-to-let properties.  The rate of ADS is currently set at 3% but will increase to 4% from 25th January next year if the proposal is passed by the Scottish Parliament.  An indication of the increased LBTT liabilities on residential property purchases is summarised in the following table:

Purchase Price

LBTT

NO ADS

LBTT including

ADS Current Rate

LBTT including

ADS Proposed Rate

Increase in LBTT

where ADS due

£100,000

£0

£3,000

£4,000

£1,000

£250,000

£2,100

£9,600

£12,100

£2,500

£500,000

£23,350

£38,350

£43,350

£5,000

£750,000

£48,350

£70,850

£78,350

£7,500

£1,000,000

£78,350

£108,350

£118,350

£10,000

£1,500,000

£138,350

£183,350

£198,350

£15,000

£2,000,000

£198,350

£258,350

£278,350

£20,000

Again, the Budget changes will result in significantly higher LBTT liabilities for those looking to purchase Scottish dwellings as second homes or as investments or are otherwise caught by the ADS provisions.

Reliefs for PAIFs and COACS

In a move to safeguard Scotland’s attractiveness as a location for investment and development the Scottish Government announced its intention to introduce two new LBTT reliefs over the course of 2019.  These reliefs will be the subject of consultation:

  • Seeding relief: A relief to allow the initial transfer of property into a PAIF or CoACS
  • Relief where units in CoACS are exchanged.

For more information please contact Anne Marie Renz.

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