Understanding Proper Liferents and Their Impact on Additional Dwelling Supplement (ADS)
LBTT and proper liferents: who counts as owning a dwelling for ADS
For Scottish LBTT Additional Dwelling Supplement purposes, a proper liferent has special ownership rules. The liferenter is treated as owning the dwelling, while the granter and the fiar are treated as not owning it, even if the fiar is the registered owner. This can affect whether ADS is due, so the key issue is the liferenter’s property position at the end of the effective date.
- A proper liferent gives the liferenter the right to use and enjoy the property for life or for the period set out in the deed, with the fiar taking title when the liferent ends.
- For ADS, the liferenter is deemed to be the owner of the dwelling, and the granter and fiar are ignored for ownership of that dwelling.
- This rule applies even if the fiar has registered title in the Land Register, so registration does not change the ADS result.
- When checking if ADS applies, focus on the liferenter’s dwellings, whether they are replacing a previous main residence, and the position at the end of the effective date.
- It is important to confirm that the arrangement is a proper liferent, because different rules may apply to trust-based or beneficial liferents.
- For example, if a parent keeps a proper liferent over their former home and later buys another home, they may be treated as owning both properties and ADS may apply.
Scroll down for the full analysis.
Read the original guidance here:
Understanding Proper Liferents and Their Impact on Additional Dwelling Supplement (ADS)
LBTT and proper liferents: who is treated as owning the dwelling for ADS
This page explains how the Additional Dwelling Supplement (ADS) works when a dwelling is held under a proper liferent. The key point is that LBTT has special ownership rules for these arrangements. The person with the liferent is treated as the owner of the dwelling for ADS purposes, while the granter of the liferent and the fiar are treated as not owning it. That can change whether ADS is due.
What this rule is about
A proper liferent gives one person, the liferenter, the right to use and enjoy a property during their lifetime, or for another period stated in the deed creating the liferent. When the liferent ends, title goes to another person, known as the fiar.
This matters because ADS depends heavily on how many dwellings a person owns at the end of the effective date of the transaction, and whether they are replacing a previous main residence. In an ordinary purchase, ownership is usually straightforward. With a proper liferent, it is not. LBTT therefore uses a deemed ownership rule to decide who counts as the owner.
The source also draws an important distinction between proper liferents and improper or beneficial liferents created through settlement trusts or liferent trusts. This page is about proper liferents only.
What the official source says
The official material says that, for ADS purposes under the Land and Buildings Transaction Tax (Scotland) Act 2013, the liferenter is treated as the owner of the dwelling. The granter of the liferent and the fiar are treated as not being the owner.
This deemed ownership rule applies whether or not the fiar has registered title in the Land Register. So registration by the fiar does not change the ADS analysis.
In practical terms, when deciding whether ADS applies to a transaction involving a proper liferent, you look at the liferenter’s dwelling position, not the fiar’s and not the granter’s, in relation to that dwelling.
What this means in practice
The practical effect is that a person can be treated as owning a dwelling for ADS even if they are not the person who appears to hold the title in the ordinary sense. Equally, someone who paid for the property or who is the fiar may be ignored for ADS ownership purposes in relation to that dwelling.
This can produce results that may seem counterintuitive:
- A buyer who already owns several dwellings may avoid ADS on the new purchase if the new dwelling is subject to a proper liferent and the liferenter is treated as the owner for ADS purposes.
- A liferenter may be treated as owning an additional dwelling even though they do not hold the title as fiar, which can trigger ADS on their own later purchase.
- The fiar’s registration of title does not alter the deemed ownership position for ADS.
So the right question is not simply “who bought the property?” or “whose name is on the title?” The right question is “who is treated as owning the dwelling under the proper liferent rules when applying ADS?”
How to analyse it
A sensible way to approach a transaction involving a proper liferent is as follows.
First, confirm that the arrangement is a proper liferent, not a trust-based liferent or some other structure. The source material expressly distinguishes the two.
Second, identify the three possible parties:
- the liferenter, who has the right to use and enjoy the property
- the granter of the liferent
- the fiar, who takes the title when the liferent ends
Third, apply the deemed ownership rule for ADS. The liferenter is treated as the owner of that dwelling. The granter and the fiar are treated as not owning it for this purpose.
Fourth, test the ADS position at the end of the effective date of the transaction. In particular, ask:
- How many dwellings does the liferenter own or is deemed to own at that point?
- Has the liferenter sold or replaced a previous main residence?
- Is the dwelling that the liferenter is deemed to own worth more than the relevant minimum value for ADS purposes?
Fifth, do not let Land Register title distract from the statutory rule. The source is clear that the fiar’s registration does not affect the deemed ownership analysis.
Example
Illustration: A parent transfers ownership of their existing home to their child, and the child grants the parent a proper liferent over that home. The parent later buys a second home. For ADS purposes, the parent is treated as owning the original home because of the liferent. If, at the end of the effective date of the second purchase, the parent has not replaced a previous main residence and the relevant value condition is met, ADS applies to the second purchase.
This reflects the source example where the liferenter is treated as owning both the liferented dwelling and the newly acquired second home.
Why this can be difficult in practice
The main difficulty is that legal title, beneficial enjoyment, and deemed ownership do not line up in the usual way. People often assume that the purchaser or the registered owner must be the relevant owner for ADS. In proper liferent cases, that assumption can be wrong.
Another difficulty is classification. The source notes that proper liferents are different from improper or beneficial liferents created through settlement trusts. That distinction matters. The ADS treatment discussed here is tied to proper liferents, so the legal nature of the arrangement must be identified correctly.
There can also be timing issues. ADS is tested by reference to the position at the end of the effective date of the transaction. A sale of a previous main residence that happens by that point may change the answer. If it has not happened by then, the result may be different.
Finally, readers may overlook that the fiar’s title registration is irrelevant for this specific ownership rule. The statute deems ownership in a particular way for ADS, and that rule overrides what might otherwise seem obvious from the register.
Key takeaways
- For ADS purposes, a proper liferenter is treated as the owner of the dwelling.
- The granter of the liferent and the fiar are treated as not owning that dwelling for ADS, even if the fiar is registered in the Land Register.
- In transactions involving proper liferents, the ADS analysis turns on the liferenter’s property position at the end of the effective date, including whether they have replaced a previous main residence.
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Useful article? You may find it helpful to read the original guidance here: Understanding Proper Liferents and Their Impact on Additional Dwelling Supplement (ADS)
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