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LBTT And Other Transaction Taxes

When considering the purchase of property in Scotland, either commercial or residential, it is important to take into account not only the purchase price but also the associate transaction taxes and fees as they can have a significant impact on the overall cost of acquisition.

Land and Buildings Transaction Tax (LBTT) may be payable on a purchase of property in Scotland along with the Additional Dwellings Supplement (ADS) on second properties.

LBTT is calculated on a ‘sliding scale’ whereby the total condensation paid for the property is split into various bands with the tax calculated on each band.

LBTT rates for 2021/22 are as follows:

Commercial PropertyRate On Band
Up to £150,000Nil
£150,001 - £250,0001%
Over £250,0005%
Residential PropertyRate On BandRate If Second Property
Up to £145,000Nil4%
£145,000 - £250,0002%6%
£250,001 - £325,0005%9%
£325,001 - £750,00010%14%
Over £750,00012%16%

ADS is payable at 4% on the total value of the purchase assuming the chargeable consideration is in excess of £40,000.

There are various reliefs that can be claimed to help reduce the exposure to LBTT including multiple dwellings relief (2 or more properties) or if the purchase includes 6 or more properties then ADS will not be applicable. Limited companies acquiring residential property will always be subject to the ADS, even if it is their first property, unless the company is buying 6 or more properties at the same time.

LBTT is now very complex due to the interaction of the various rates, reliefs and ADS and the distinction between residential and commercial property is now more important than ever.

It is quite often the case that LBTT, ADS and other finance costs (loan arrangement fees, legal fees etc.) can easily make up 5-10% of the purchase price and as these must normally be paid via existing cash resources it is important to budget for them when considering making an offer.

For example, the purchase of a £400,000 property as a furnished holiday let (FHL) investment may have the following costs:

Purchase price£400,000
Loan arrangement fee£3,600
Advisor fees £4,000
Total cost of acquisition£436,950

If you are considering acquiring additional property, then LBTT should be considered early as it can have a significant impact on the overall cost of acquisition and any finance that may be required.

To discuss your own circumstances, please contact our Property Taxperts by calling one of our offices or emailing [email protected].

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