Land and Buildings Transaction Tax – What you need to know

Land and Buildings Transaction Tax – What you need to know

If you are a landlord in Scotland, different rules apply from the rest of the UK and you could be subject to different taxes, including an alternative form of stamp duty when you buy.

UK Stamp Duty Land Tax  was replaced  by the Land and Buildings Transaction Tax (LBTT) in Scotland on 1 April 2015 and applies to all land and buildings transactions (including commercial leases).

It attracts different tax rates on each portion of the purchase price above the  zero-tax threshold of £145,000. This means property transactions are taxed at the following rates:

Up to £145,0000 – 0%

£145,000 – £250,000 – 2%

£250,001 – £325,000 – 5%

£325,001 – £750,000 – 10%

Over £750,000 – 12%

This is somewhat similar to how stamp duty works in the rest of the UK.

An Additional Dwelling Supplement (ADS) of four per cent may also apply on second properties, such as buy-to-lets. This is an extra levy designed to protect first-time buyers in Scotland.

If you let residential or commercial property in the UK and live abroad for six months or more each year, HM Revenue & Customs (HMRC) will class you as a non-resident landlord, even if you are a UK resident for tax purposes.

Separate provisions for payment of tax apply for anyone classed as a non-resident landlord. For resident landlords, as far as income tax is concerned you pay on income earned at either 20 per cent or 41 per cent, the higher tax level in Scotland, on rental income earned over £1,000.

Beyond the first tax-free £1,000, there are circumstances where you may have to fill in a self-assessment form. The trigger points are between £1,000 and £2,500 and above £2,500 – your accountants can advise you on this.

The bill can be mitigated by calculating your taxable income and then deducting what are described as allowable expenses, which can include:

  • Agents fee
  • Utility bills
  • Accountancy fees
  • Letting fees

Capital Gains Tax becomes payable when you sell one or more of your rental properties, including buy-to-let.

Again, there are areas which can mitigate the bill, such as household fitting and furnishings, classed as domestic items.

The capital gain is calculated as the selling price, minus original purchase price and any cost of major improvements to the property. LBTT for the original price can also be deducted as can legal fees incurred during the sale.

Sales attract rates of 18 per cent and 28 per cent for those in the higher tax band. When calculating the figure, it should be noted that individuals can use their CGT tax free allowance, currently at £12,300 to offset against the final figure. Both partners in a relationship can use this allowance.

The BR/HR split for CGT is based on UK tax bands, even for Scottish Taxpayers. CGT is calculated on estimated income for the year in which it is important to sit down with an accountant and get as close a figure as possible. This is so as not to tip into a 28% higher rate by accident further in the year if your income is close to the higher rate banding.

Finance costs like mortgage interest and loans can, in some circumstances, also be offset at the basic rate and you will receive a reduction in income tax liability.

Any Stamp Duty or LBTT that you paid when you bought the property can be deducted as a cost of purchase as well as any legal fees that you incurred to buy and sell the property. Again, your tax expert will be able to give accurate figures on this.

For advice on Property Tax in Scotland, please contact our Accounts Senior, Laura Duffy, at or on 01236 756161

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