What is the LBTT Supplement all about?

The Land & Buildings Transaction Tax (LBTT) Additional Dwelling Supplement is a 3% surcharge on purchases of additional residential properties (such as buy-to-let properties and second homes) with a purchase price of £40,000 or more, as of 1 April 2016.

It brings charges in Scotland in line with the UK Government’s Stamp Duty Land Tax (SDLT) surcharge on residential properties in England and Wales.

Prior to the implementation of this additional LBTT, it was argued that the absence of a similar surcharge in Scotland could attract investment in residential properties in Scotland, particularly at the lower end of the market. This had the potential to make it difficult for first-time buyers to get onto the first rung of the Scottish property ladder.

Who will it affect?

On its most basic level, this will affect individuals who already own a residential property and are purchasing other property (whether it is on behalf of their children, spouses or simply to lease out the property to a tenant).

The most common scenario will be where that residential property already owned is the individual’s principal residence. However, there are further provisions within the legislation in this regard, which will mean even where you have a ‘relevant interest’ in a property, this surcharge may still apply to you when purchasing a second property.

For companies however, any purchase of residential property will now be subject to the 3% surcharge, whether or not that company owns any other property. It is important to note that any exemptions or reliefs which would have applied pre-1 April will still apply in the usual manner however, which could offer up to 100% relief of any such LBTT liability.

How much tax will I actually pay in total?

For second homes (and assuming no reliefs or exemptions apply to minimise the tax liability), the new LBTT rates will be as follows for each part of a purchase price of a second home, taking into account both the new surcharge and the existing LBTT rates:-

£40k – £145k – 3%
£145K – £250K – 5%
£250K – £325K – 8%
£325 – £750k – 13%
£750K+ – 15%

The amount of LBTT tax on a purchase of a flat at £275,000 has therefore risen from £3,350, to a whopping £10,400.

Based on the above calculation alone, it isn’t hard to see where the Scottish Government’s projections of raising an additional £23m in 2016-17 from the 3% supplement have come from.

How will this affect BTL landlords?

Will this change affect would-be buy-to-let landlords? Will this additional LBTT ironically end up pricing BTL landlords out of the market? For many, that may prove to be a price they aren’t willing to pay.

If you are considering purchasing property for residential or commercial purposes, and would like to help to understand how LBTT affects you, please get in touch on 01383 721621.

Stephen Lochrie: sl@businesslaw.co.uk

Craig Smith: cjs@businesslaw.co.uk