When buying a residential property in Scotland you become liable to submit a Land and Buildings Transaction Tax (LBTT) return on any property where you pay more than £40,000, even if no LBTT is due. If the return isn’t submitted or paid on time you could be charged a penalty and interest, so as well as correctly assessing what you owe and planning for the associated costs, you must keep on top of deadlines.
How LBTT is calculated
The LBTT replaced the UK Stamp Duty Land Tax in Scotland in April 2015. It is calculated on a sliding scale depending on the increasing value of a house or flat. The percentage rate payable for each threshold band is then due. The amount is dependent on when you bought the property and how much you paid. There is a further charge due when purchasing a second residential property, known as the Additional Dwelling Supplement (ADS).
The applicable rates and thresholds
The LBTT applies to any residential dwelling, including those already used as such, and those in the process of being built or converted. It also applies to multiple occupancy dwellings, such as properties for school pupils, students (except for halls of residence for further or higher education) and members of the armed forces.
You need to calculate the LBTT due within each threshold band at the applicable percentage rate and then add the figures to find the total. Up to £145,000, no LBTT is due. For first-time buyers the residential nil band is £175,000, cutting their LBTT obligation by up to £600. From £145,001 to £250,000 a 2% LBTT is due. From £250,001 to £325,000, 5% is payable. From £325,001 to £750,000 there’s a 10% charge to calculate and over £750,000 it’s 12%.
So, for a £325,000 property, no tax is due for the first £145,000. In the second band – from £145,001 to £250,000 – then 2% is due on the £105,000 value of the property that falls in that threshold, equating to £2,100 in LBTT. But you also owe 5% (or £3,750) on the £75,000 that falls in the next threshold band of between £250,001 to £325,000. In that case the total LBTT consideration would be £4,850. You can check your calculations using Revenue Scotland’s tax calculator.
The payment process
If you have a solicitor or conveyancer handling your purchase then these tax professionals can complete the LBTT return online. If you don’t then you must complete a paper tax return.
With an online return, you will be asked to select your payment method, such as BACS/CHAPS and Faster Payments or direct debit. At this point, you are provided with a unique 13-character tax reference that must be quoted when making a payment. This should be identical to the figure in your tax return as Revenue Scotland doesn’t automatically refund individual overpayments of £10 or less. Don’t forget the potential interest and penalty charges you may face if your return or payment is late.
Disclaimer: Please note this article is for guidance only but is based on official information from Revenue Scotland.