Residential property
14 Dec 2018 News

SCOTTISH BUDGET 2018: LAND AND BUILDINGS TRANSACTIONS TAX

IMPLICATIONS FOR HOUSEBUILDERS

A number of changes to Land and Buildings Transactions Tax (LBTT) were announced in the Scottish Budget on 12th December 2018 that may impact on the housebuilding industry.  There are 2 key proposals that may have repercussions:

  • Land acquisition: A change to the tax rates and bands.
  • Complex Part Exchange matters involving Additional Dwellings Supplement:  An increase in the rate from 3% to 4%.

Land Transactions

The purchase of development land 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 land acquisitions where the price is in excess of just under £360,000. 

The following table gives an indication of the size of the increased LBTT liabilities that 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 land acquisitions.

Part Exchange and 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.  Acquisition by housebuilders of an existing property in part exchange for a new build is ordinarily exempt from LBTT generally and ADS but there are situations where the exemption will not apply, including where the PX property is not owned by the party acquiring the new build (perhaps a parent or partner) or has not been lived in by the party acquiring the new build within the previous two years (perhaps owned as an investment property): in these situations LBTT and ADS will be payable based on the value of the PX property. 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 (and thus impact affordability to acquire a new build property) and could impact a non-conventional PX transaction.

For further information please contact Anne Marie Renz or a member of the tax team.

Back to news list

How can we help you today?

Gillespie Macandrew LLP’s website uses cookies. By continuing to browse you are agreeing to our use of cookies. Click here for more information.