This article on changes to LBTT rates and thresholds by Tim Macdonald from our Rural team features in the next edition of Land Business, Scottish Land and Estates quarterly magazine.
January saw significant changes to Land and Buildings Transaction Tax (LBTT) rates and thresholds, the first since the tax came into force in 2015. The changes took effect on 25 January 2019 and apply to:
- transactions where Additional Dwelling Supplement (ADS) is payable
- non-residential property transactions where a lump sum changes hands (e.g. a purchase, or a lease where a premium is paid).
However, if missives were concluded before 12 December 2018 (the day the change was announced), the old rates will apply. Residential property transactions where no ADS is payable are not affected by the changes.
Additional Dwelling Supplement
For many people, the headline change is a rise in ADS from 3 per cent to 4 per cent. ADS is calculated on the total price attributable to additional dwellings – that is, dwellings bought by someone who (or whose spouse, cohabiting partner or child under 16) already owns a dwelling, except as a replacement for the buyer’s owned main residence. It is payable in addition to “ordinary” LBTT. ADS also applies whenever a company or discretionary trust buys a dwelling (even if it owns no other dwellings). It also applies when an individual buys more than one dwelling on the same day (not counting a replacement of their owned main residence), even if they owned no dwellings before that.
Non-residential property transactions
Before 25 January 2019, non-residential property transactions were charged at 3 per cent between £150,000 and £350,000, and 4.5 per cent above that. Now, it is 1 per cent between £150,000 and £250,000, and 5 per cent above that. The “break-even” point is £350,000, the former threshold amount. This means that purchases for less than £350,000 will incur less LBTT than before; purchases for more than £350,000 will incur more.
How new LBTT rates and thresholds compare to the old
| Consideration (£) | Tax rate before 25/1/19 | Tax rate from 25/1/19 |
| 0-150,000 | 0% | 0% |
| 150,001-250,000 | 3% | 1% |
| 250,001-350,000 | 3% | 5% |
| 350,001 and above | 4.5% | 5 |
Then and now: LBTT payable on different amounts (assuming no ADS payable)
| Consideration (£) | Tax due before 25/1/19 | Tax due from 25/1/19 | Difference |
| £200,000 | £1,500 | £500 | -£1,000 |
| £300,000 | £4,500 | £3,500 | -£1,000 |
| £500,000 | £12,750 | £13,500 | +£750 |
| £1m | £35,250 | £38,500 | +£3,250 |
| £2m | £80,250 | £88,500 | +£8,250 |
| £5m | £215,250 | £238,500 | +£23,250 |
As the table on “Then and now” shows, the effect of the rate changes is significant for higher-value properties. Where ADS applies to a non-residential property transaction (e.g. a “mixed” transaction including non-residentialproperty and an additional dwelling), the difference will be even greater due to the ADS increase.
As an example, DairyCows Ltd buys a farm for £3 million. The farmhouse is worth £500,000 and the farmland and agricultural buildings are together worth £2.5m. ADS is payable on the farmhouse as the buyer is a company. Before 25 January 2019, the tax due would have been £125,250 of“ordinary” LBTT and £15,000 of ADS: total £140,250. From 25 January, the tax is £138,500 “ordinary” LBTT and £20,000 ADS: total £158,500. The difference is £18,250.
Multiple Dwellings Relief – a reminder
Those facing higher tax bills should remember Multiple Dwellings Relief. This can significantly reduce the tax payable where more than one dwelling is purchased in either a single transaction or a series of linked transactions.
In simple terms, Multiple Dwellings Relief allows a buyer to pay LBTT on the residential component of the price as though there were multiple separate purchases, each for the average dwelling price (though the relief can never exceed three quarters of the tax that would otherwise be payable).
Leases
Premiums paid on leases are taxed in the same way as consideration paid for a purchase, so the changes to nonpresidential rates and thresholds also apply to premiums. There is no change to the tax on the Net Present Value (NPV) of the rent payable, which remains at 1 per cent of the NPV exceeding £150,000. NPV is a method of capitalising the rent payable over the term of the lease.
