Land and Buildings Transaction Tax Levy

Are you considering purchasing a second property as a buy-to-let or as a second home? If so then you may be liable to a new 3% levy on the purchase price of the property which comes into effect from 1 April 2016.

In Scotland, Land and Buildings Transaction Tax (LBTT) replaced UK Stamp Duty Land Tax in April 2015. The Scottish Government have confirmed that LBTT rates will remain at the same level for 2016/17. However, from 1 April 2016, a supplement will be levied on the purchase of additional homes such as second homes or buy-to-let properties.

The additional supplement will be 3% of the purchase price of the property on top of any existing LBTT. The new tax will affect properties which cost more than £40,000. The levy will apply whether or not the property is rented out or just used as a second home. Purchases of caravans, mobile homes and houseboats will be exempt from the charge, as will certain property developers.

As an example, this will mean that a property being purchased for £180,000 as a second home will incur LBTT of £700 with an additional supplementary levy of £5,400, being 3% of the full purchase price.

However, even where no LBTT is payable, which includes properties under £145,000, the additional tax will still be due. For example, a property, if deemed a second property with a purchase price of £120,000, would attract a supplement of £3,600 despite there being no LBTT due.

Parties wishing to purchase an additional property or a buy-to-let property will need to take these figures into account when organising their funding as this levy will have financial implications on a large number of purchases.

The levy will only apply to purchases of additional residential property which complete on or after 1 April 2016. If contracts are exchanged after 25 November 2015 then the higher rates will apply if the purchase is completed on or after 1 April 2016.

However, if contracts were exchanged on or before 25 November 2015 but not completed until on or after 1 April 2016, the higher rates will not apply.

Married couples and civil partners who only own one property at the end of the day of a transaction will not pay the additional LBTT levy. However, if either of them owns more than one residential property they may pay the levy when purchasing another property. The Scottish Government will treat married couples and civil partners living together as one unit for these purposes.

Compare this to unmarried couples, who can own one main residence each before they become liable to the additional levy.

Consideration should also be given to houses inherited as these will be deemed to be owned by the individual and therefore if another property is then acquired then that additional acquisition would be subject to the additional levy.

If you would like more advice or to discuss a specific transaction then please contact your usual EQ contact.