How is LBTT calculated when buying a house with holiday cottages that may count as separate dwellings?

Introduction

Buyers often ask how Land and Buildings Transaction Tax (LBTT) applies where one purchase includes a main house and additional accommodation such as holiday cottages, annexes or converted outbuildings. The tax position can be important because a transaction involving more than one dwelling may qualify for Multiple Dwellings Relief (MDR), which can reduce the amount of LBTT due.

A common point of confusion is whether planning permission changes the tax treatment. For example, if holiday cottages have permission to be used as residential accommodation, does that mean the whole site becomes one large dwelling, or can the cottages still count as separate dwellings for LBTT purposes?

The Question

A buyer is purchasing a property consisting of a main house and two holiday cottages sold together in one transaction. Planning permission has been granted so that the cottages may be used as residential accommodation. The buyer wants to know:

• whether the LBTT position changes because of that planning permission;
• whether the property should be treated as one dwelling or multiple dwellings; and
• who is responsible for calculating the correct LBTT liability.

Nick’s Explanation

Nick’s core point was that, in practice, the conveyancing solicitor usually deals with the LBTT calculation and filing. However, the buyer should still understand the basis of the calculation and check whether reliefs may apply.

He also noted that the transaction may qualify for Multiple Dwellings Relief. That is often the key issue where a purchase includes a house and additional self-contained accommodation.

In anonymised form, his answer can be summarised like this:

“Generally your conveyancing solicitor will be responsible for calculating the tax owed. However, it is always best to do your own calculations in case your solicitor is unsure of your LBTT liability. You may be eligible for multiple dwellings relief.”

The Law

LBTT is charged under the Land and Buildings Transaction Tax (Scotland) Act 2013. The amount payable depends on the nature of the property being acquired and whether any relief applies.

Where a transaction includes more than one dwelling, Multiple Dwellings Relief may be available. Broadly, MDR works by:

• dividing the total consideration by the number of dwellings;
• calculating the tax on that average amount; and
• multiplying the result back up by the number of dwellings, subject to any minimum tax rules that apply.

The critical legal question is usually whether the additional accommodation is a separate “dwelling” at the effective date of the transaction. That is a factual question. It is not decided simply by the label used in marketing particulars, nor solely by the existence of planning permission.

In tax law, whether something is a dwelling normally depends on its physical character and suitability for use as a single residence. Relevant features often include whether the unit has its own kitchen, bathroom, sleeping area and a sufficient degree of independence for residential occupation.

If the issue is whether a building is uninhabitable or not suitable for use as a dwelling, the threshold is now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. That case indicates that substantial disrepair or inconvenience will not automatically prevent a building from being treated as suitable for use as a dwelling. Although that was an SDLT case, it is a useful indicator of how tribunals and courts may approach similar dwelling-suitability questions.

Analysis

The starting point is that planning permission to use holiday cottages as residential accommodation does not, by itself, determine the LBTT outcome. Planning status may be relevant evidence, but it is not the whole test.

The real question is what is being bought on the effective date of the transaction.

Step by step, the analysis usually works like this:

1. Identify the units included in the purchase.

   Here, there is one main house and two cottages included in a single acquisition.

2. Consider whether each cottage is a separate dwelling.

   If each cottage is self-contained and suitable for use as a residence in its own right, it may count as a separate dwelling even if all buildings are on one title or one site.

3. Consider the effect of planning permission.

   Planning permission allowing residential use may support the argument that the cottages are capable of residential occupation. But it does not automatically merge them into one dwelling with the main house. Equally, if the cottages are not physically configured as separate dwellings, planning permission alone may not be enough to make them separate dwellings for LBTT.

4. Look at the physical layout and functionality.

   The fact that there are three front doors may be relevant, but it is not decisive. The stronger indicators are self-containment, independent facilities and whether each unit can realistically be lived in as a dwelling.

5. Decide whether MDR is potentially available.

   If the main house and the two cottages are three dwellings at the effective date, MDR may apply. If the whole property is in reality one single dwelling, MDR would not apply on that basis.

6. Calculate the tax on the correct basis.

   Once the number of dwellings is established, the LBTT can be calculated using the ordinary residential rates or the MDR method, whichever is legally appropriate.

So, the tax does not change merely because planning permission “kicks in”. What matters is the legal and factual character of the property at completion, especially whether the cottages are separate dwellings in substance.

Outcome

The practical answer is that the buyer’s solicitor will usually prepare and submit the LBTT return and calculate the amount payable, but the buyer remains responsible for ensuring the return is correct.

If the holiday cottages are genuinely separate, self-contained dwellings at the effective date of the purchase, Multiple Dwellings Relief may be available. If they are not separate dwellings in fact, the purchase is more likely to be taxed as a single residential property.

Planning permission is relevant, but it is not conclusive. The tax result turns mainly on the physical and functional nature of the cottages at the time of purchase.

Practical Steps

• Ask your solicitor to explain in writing whether they have treated the cottages as separate dwellings for LBTT purposes.
• Check whether each cottage is self-contained, with its own living, sleeping, cooking and washing facilities.
• Review the planning documents, floor plans and sales particulars, but do not assume planning permission alone decides the tax treatment.
• Consider whether the cottages are actually suitable for use as dwellings at completion.
• If any part of the argument depends on disrepair or unsuitability for habitation, bear in mind that the threshold is now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799.
• Use Revenue Scotland guidance on Multiple Dwellings Relief as a starting point, but base the final view on the actual facts of the property.
• If the position is unclear, obtain a specialist LBTT opinion before completion.

Conclusion

When buying a house together with holiday cottages, the key LBTT issue is not simply whether planning permission allows residential use. The real question is whether the additional buildings are separate dwellings at the effective date of the transaction. Your solicitor will normally calculate and file the LBTT return, but you should make sure the MDR position has been properly considered.

Legal References Used

• Land and Buildings Transaction Tax (Scotland) Act 2013
• Revenue Scotland guidance on Multiple Dwellings Relief
• Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799

This page was last updated on 22 March 2026.

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