Land & Buildings Tax - An Update from WJM
WJM’s head of Commercial Property, Colin Brass comments on the Scottish Government’s proposals announced on 9th October, 2014.
Stamp Duty Land Tax (SDLT) is the means by which the UK government currently levies tax on land transactions throughout the UK. In Scotland from 1st April, 2015, SDLT will be replaced by a new tax, the Land and Buildings Transaction Tax (LBTT).
The proposals announced on 9th October require Scottish Parliamentary approval but for the purposes of this note, we will assume that the proposals become law.
LBTT will not apply elsewhere in the UK and the rates of tax will be different. The Scottish government expects the same revenue to be generated but is looking to redistribute the liability. How the market will react to that is a moot point.
Property Sales
LBTT will apply to sales of both residential and commercial properties. It will be a progressive tax, like income tax.
The rates are as follows:
| Residential | % | Commercial | % |
|---|---|---|---|
| Up to £135,000 | 0 | Up to £150,000 | 0 |
| £135,000 – £250,000 | 2 | 150,000 – £350,000 | 3 |
| £250,001 - £1,000,000 | 10 | above £350,000 | 4.5 |
| above £1,000,000 | 12 |
The rates are higher under LBTT but cannot be compared directly with SDLT because of the progressive nature of the tax.
We attach an Appendix to this note which gives a comparison of SDLT against LBTT for different sale prices – part 1 for sales of residential properties and part 2 for sales of commercial property.
LBTT will be less on sales of residential properties up to £325,000 and will be less on sales of commercial properties up to £2,000,000. Above these levels the differences will be considerable, particularly on the residential side, for example on a £700,000 residential sale, LBTT will be £19,300 more than SDLT and on a £5,000,000 commercial sale, LBTT will be £15,250 more.
Leases of commercial property and agricultural leases
The rates of LBTT and SDLT will be the same although LBTT will be more closely based on what rent is paid. It is difficult to say which regime will result in a higher tax liability for any given transaction: what is clear, however, is that LBTT will be a greater administrative burden on taxpayers since it requires a return to be submitted not only at the start of each lease but also, at least, each three years thereafter throughout its duration. Overpayments or underpayments will be due following each return.
LBTT will have a significant impact on the level of tax payable on property transactions. This briefing note does not cover all of the changes which are proposed from April, 2015. There may be benefits in altering the timing or structure of proposed transactions.
Please either contact me or your usual property adviser at WJM if you have any queries on how LBTT might affect you.
Colin J. S. Brass
0141 248 3434
