The first “new” tax in over 300 years
The Land and Buildings Transaction Tax (LBTT) is the first new tax to be raised by the Scottish Parliament in over 300 years and will replace Stamp Duty Land Tax (SDLT) on all property transactions in Scotland from 1 April 2015.
Might this affect you now?
Although implemented from April 2015 it is important to consider LBTT now. With deals being concluded for new buildings, tenants concluding pre-lets and conditional contracts being concluded for properties to be completed post April 2015, it is important to establish how LBTT will impact on the transaction and any additional costs which may be incurred under LBTT.
A “progressive” tax
Whereas SDLT is a “slab tax” (with one SDLT rate being charged on the whole price if it exceeds a certain threshold), LBTT is a “progressive tax” (with various rates of LBTT being charged on the portion of the price within each tax band). Many commentators regard LBTT as much “fairer” than SDLT in this regard.
Nil rate thresholds
LBTT has also met popular favour in adopting nil rate thresholds of £150,000 for commercial property (the same as SDLT) and £135,000 for residential property (compared with £125,000 for SDLT).
Rates: commercial property
However, the good news for institutional investors ends with the tax rates. On commercial property, the SDLT rates are:
- 1% if the price is between £150,001 and £250,000
- 3% if the price is between £250,001 and £500,000
- 4% if the price is over £500,000.
The LBTT rates are:
- 3% on the part of the price between £150,001 and £350,000
- 4.5% on any part of the price over £350,000.
So, a £10,000,000 office investment attracts SDLT of £400,000 but LBTT of £440,250.
Rates: residential property
Scottish Government has publicly stated that it has sought to stimulate the housing market for first time buyers and the LBTT rates give rise to property tax “savings” on transactions with house prices of £325,000 and less. At the higher end of the residential market, however, the additional tax payable is significant.
The SDLT rates for residential property are:
- 1% if the price is between £125,001 and £250,000
- 3% if the price is between £250,001 and £500,000
- 4% if the price is between £500,001 and £1,000,000
- 5% if the price is between £1,000,001 and £2,000,000
- 7% if the price is over £2,000,000.
Also note that the SDLT rate is 15% for prices over £500,000 if the purchaser is not a natural person, eg is a company.
The LBTT rates are:
- 2% on the part of the price between £135,001 and £250,000
- 10% on the part of the price between £250,001 and £1,000,000
- 12% on the part of the price over £1,000,000.
So, a £750,000 house attracts SDLT of £30,000 but LBTT of £52,300 and a £2,500,000 residential property attracts SDLT of £175,000 but LBTT of £257,300.
Rates: commercial leases
As with SDLT, LBTT will be paid at 1% of the net present value of the total rental payments (including VAT) to be made over the duration of the lease (less £150,000). However, tenants will be required to submit LBTT returns every three years (as opposed to five yearly under SDLT) with the LBTT payable being adjusted if applicable and there is no cut off on assessment at the end of year five (as there is with SDLT).
Other points to note are:
- LBTT on any capital payment will be at the same rates as for a purchase
- Rent deposits (whether a new lease or assignation) will be treated as part of the consideration (if it exceeds twice the annual rent) for LBTT purposes
- Scottish Government has reserved the power to apply LBTT to certain types of non-residential licences to occupy.
Is there any relief?
The various reliefs from SDLT are replicated in LBTT with the notable exception of sub sale relief. However, watch out for Scottish Government introducing relief for certain development projects.
Who do you pay?
Commentators have noted a “sensible” move to link the process of paying LBTT with the registration of title process. Whereas SDLT is collected by HMRC, LBTT will be collected by Revenue Scotland and it is intended that Revenue Scotland will work closely with the Scottish Land Registry.