Going Live: LBTT Changes Now In Force

Scotland

The Scottish Government set out its draft Budget for the period 2019 to 2020 on 12 December 2018. Outlined within this Budget were proposals to change the Land and Building Transaction Tax (LBTT) rates and bands as well as increase Scottish Landfill Tax (SLfT) rates. The SLfT proposals are undergoing review by the Scottish Parliament, with a stage one vote expected at the end of January but they are expected to be in line with inflation. However, the changes to LBTT rates and bands came into effect on 25 January 2019.

The LBTT changes affect commercial properties, with both the bands and rates having been adjusted. Where the price is £150,000 or less, the threshold remains the same and no LBTT will be payable. However, for purchases where the price is greater than £150,000 but less than £250,000, LBTT will now be payable at a rate of 1% - a 2% reduction on the previous rate but also a reduction in the band size by £100,000; so this is good news for people buying commercial properties between £150,000 and £250,000 but will tip those buying at £250,000 or more into the higher rate band earlier and potentially increasing their costs. The higher rate band has been increased by 0.5% to 5%.

As LBTT is a progressive tax those buying properties for between £250,000 and £350,000 will actually pay less tax under the new rates and bands but that will be offset by the additional revenue to come from purchases and lettings of properties for values in excess of £350,000.  Here are some examples:

Purchase Price

Tax payable as at 22/1/2019

Tax payable as at 29/1/2019

£300,000

£4500

£3500

£500,000

£12,750

£13,500

£1,000,000

£35,250

£38,500

The previous LBTT rates will continue to apply to those transactions where the effective date falls on or after 25 January 2019 but a contract was entered into before 12 December 2018. Purchasers and tenants will need to factor in the increased costs when negotiating terms going forward – and bearing in mind that where VAT is payable, LBTT is payable on the VAT inclusive cost. It is likely that some purchasers and tenants will expect sellers and landlords to ‘share some of the pain’ on the increase.

The Budget also confirmed that the Scottish Government will consult on the introduction of 2 new LBTT reliefs aimed at encouraging investment in the Scottish property market by investors such as pension funds and insurance companies.  Many industry bodies have voiced concerns about the current lack of reliefs when transferring assets from one portfolio to another - reliefs that are available in other parts of the UK.  It is expected that the consultation will be well responded to as there have already been calls for the Scottish Government to address some of the perceived issues with the scheme available in the rest of the UK

Co-authored by Megan McCulloch.