Scotland’s Stamp Duty: LBTT Explained

Every new and experienced home buyer has come across stamp duty. It’s paid on properties above a certain threshold and can add a significant cost to a house purchase. There are slight variations between different countries in the UK, however.

Here we take a look at the stamp duty in Scotland and what your obligations are if you are buying a property there.

Land and Buildings Transaction Tax or LBTT

In 2015, Scotland changed the name of stamp duty to LBTT for all land and property transactions in the country. The tax is administered by Revenue Scotland and is applied to both commercial and residential property and land purchases.

Scotland has different rates for residential and non-residential properties. The LBTT is split into bands and you are liable for tax if the value of your property falls within these. For residential purchases the tax bands are as follows:

·         £0 up to £145,000 there is no LBTT tax to be paid.

·         Between £145,000 and £250,000, the rate is 2%.

·         Between £250,000 and £325,000, the rate is 5%.

·         Between £325,000 and £750,000, the rate is 10%.

·         Above £750,000, the rate is 12%.

If you are a first-time buyer and you are purchasing a home that is worth £280,000 you won’t pay anything on the first £145,000. You’ll pay 2% for the next £105,000 or £2,100. You’ll also pay 5% on the final £30,000 or £1,500. In total your LBTT liability will be £3,600.

If you are a first-time buyer and you are purchasing the property to be the only one that you live in, you may be eligible for some tax relief. This ensures you are not liable for LBTT up to £175,000 rather than £145,000.

Additional Charges for Second Home Buyers

If you are purchasing a second home, for example as a buy to let property, there are higher levels of LBTT to pay. This changed on 25th January 2019 and rose from 3% to 4%. What this means is that, if you are buying a second property in Scotland, you need to add an extra 4% to the tax rate in each band. For the lower band, the additional LBTT kicks in at £40,000 and not £145,000.

If you are liable for Land and Buildings Transaction Tax, it needs to be paid to Revenue Scotland once the purchase has gone through. As with other parts of the country, failure to submit on time can lead to penalties and fines. Even if your property falls under the £145,000 threshold, you still need to submit a return to Revenue Scotland.

Can You Avoid Paying LBTT?

Unless your property is under the value of £145,000, the answer is generally no, though there are a few notable exemptions:

·         If you are separating or divorcing and the property is part of a court settlement, you do not need to pay LBTT. If you are joint owners and are either unmarried or not in a civil partnership, you may be liable for the tax.

·         If you are left a property in a will, you will not pay LBTT even if there is an amount outstanding on the mortgage.

·         If you are left a property as a gift, you don’t have to pay LBTT as long as there is no mortgage outstanding. If there is, you may have to pay according to the amount which is outstanding.

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