LBTT: The Peculiar Mystery of the Scottish Stamp Duty


The story so far……. 
On 1 April 2016 an important change is being made to the Scottish version of Stamp Duty called LBTT. This tax is likely to be suffering from an identity crisis soon because it has already changed three times in its very short life.

This website is not an economics blog but the change in this tax and the rather unedifying pace at which it, and its UK equivalent, have been introduced is reflective of several financial considerations impacting upon the Scottish Government and indeed most governments in the Western world.

Those considerations include a significant shortage of money coupled with a desire to avoid the wrath of the public (who are already rightly angry with the elite and the establishment) of imposing additional taxes upon the “ordinary person”. That means that every wheeze that might produce a bit of extra cash is duly trotted out, generally, without proper thought and regard to unintended consequences.


It was the unintended consequences, of the imposition of the Scottish Stamp Duty known as LBTT, that probably, is in part, a cause of the rush by the Scottish Government to introduce an additional stamp duty tax after such a tax was introduced by Westminster for the remainder of the UK. The principal reason for the introduction of the tax in the remainder of the UK was twofold; firstly the shortage of money to which reference is made above and secondly an attempt to cool down the property market in the southern half of England.

When LBTT was introduced it was the first Scottish tax for 300 years. Accordingly, this was an opportunity for the Scottish Government to introduce a better tax than the horribly structured stamp duty which created “hot spot” and “cold spot” price levels in the property market. When the tax was ultimately introduced in April 2015, it certainly was a much more progressive tax which was undoubtedly a good thing. For what the less charitable may ascribe to a populist agenda on the part of the Scottish Government, the weighting of the tax was positioned so that much of the lower end of the market paid less than they would have under the old stamp duty.

There is nothing wrong with that. However, it was made clear that the new LBTT stamp duty would result in a tax take that would have been, in total, similar to the amount that would have been paid under the old stamp duty. Accordingly, if the tax was less in the lower part of the market, the laws of mathematics require that it be at a greater level in the upper part of the market. But Scotland is not the south of England and outside of Edinburgh and the West End of Glasgow there is little current demand for high-priced properties in Scotland. Statistics show that those people in the middle to upper middle part of the market are just not moving as they used to. Outside of the hotspots the upper part of the market is sclerotic. Aberdeen, which is a high-priced city, is in recession further reducing the tax take.

So, although we are advised by the Scottish Government that LBTT finances are broadly on course, there is much speculation (which seems well-founded) that the sums will not add up. Accordingly, there must have been much cheering by John Swinney, the Finance Minister at Holyrood last autumn that the UK Government had delivered an early Christmas present. This was the introduction of a 3% stamp duty levy essentially for investment properties and second homes.

Those with a cynical disposition were able to see the irony of the Scottish Government moving with unusual speed to adopt an English Tory tax change. The tax, due to be implemented on 1 April, has been remarkable for a lack of detail and effective discussion on its consequences that would probably make even Robert Mugabe blush.


So, what are the rules? 
Changes in the law these days are made using devices that allow governments to change the rules later on if they do not suit. One is reminded of the famous quotation of Groucho Marx - “these are my principles ………..if you do not like them I have some others over here". Accordingly, the primary legislation was introduced to allow for the new tax. Basically they said that the 3% additional tax would be paid if the property was not the “main or principal dwellinghouse" of the person buying the property and there were heavy anti-avoidance provisions. Any exemptions or reliefs would follow using secondary legislation and following conversations with the public and stakeholders. The problem is that the timing of the introduction of the tax meant that such discussions were very limited.

The Scottish Government introduced their thoughts on the operation of the tax and if practitioners weren’t confused before they certainly were now. The following represents the best understanding of the new rules and how they will apply. It is likely that further clarification will be made and will bring you those changes as they happen.


Does the purchaser already own a house? 
If the answer is “NO” then the additional 3% levy (“ADS”) does not apply even if the property is a buy to let. If the purchaser is a limited company the tax will apply, however

If the answer is “YES” then move on to the next section


Is the purchaser who owns another property selling that property contemporaneously with the purchase of a new property? 


Investors feel under attack at the moment because of the changes in recovering interest charges against tax and this new ADS tax which will increase the cost of the acquisition of investment properties. All of the background papers discuss reliefs being made available to investors who already hold a portfolio (perhaps six or more properties) or who are making multiple purchases. However, the exact rules are uncertain and will be clarified in due course. Where an investor is replacing his or her main or principal house with another main or principal house and the old house is being sold then it appears that ADS will not be payable on the new replacement main or principal house.

Given the way that the LBTT taxes are collected (effectively through solicitors and Registers of Scotland) caution will be the watchword when this new tax is implemented on 1 April 2016. Undoubtedly, issues will gradually become clearer but until more information is available, purchasers should err on the cautious side and expect to pay this additional charge, unless they are clearly exempt from the examples provided.

Not an ideal set of circumstances but, for the moment, this is the position.