LBTT Guidance on Contracts for Third-Party Conveyance in Land Transactions

LBTT where a buyer can direct the seller to transfer land to someone else

Special LBTT rules can apply where a buyer contracts to buy land but can tell the seller to transfer it either to that buyer or to another person. If the buyer has not taken possession or otherwise substantially performed the contract, a direct transfer from the seller to the third party is usually treated as the only land transaction. But if the buyer has substantially performed, the buyer may face LBTT before title is transferred, and the later transfer to the third party may also create a separate LBTT liability.

• The rule commonly involves three parties: A as seller, B as the contracting buyer, and C as the person who may receive the land.
• If A transfers the land directly to C at B’s direction, and B has neither completed nor substantially performed, there is normally only one land transaction: A to C.
• If B substantially performs the contract, such as by taking possession and starting development work, B is treated as acquiring a chargeable interest and LBTT can arise at that point.
• B’s effective date for LBTT is the date of substantial performance, and the charge is based on the consideration B gives under the contract with A.
• When land or a plot is later transferred to C, normal LBTT timing rules apply to that later transaction, so C may also have an LBTT liability depending on the facts.
• In practice, the key issues are whether B’s contract rights fall within the rule, when substantial performance happens, what payments relate to each transaction, and whether a return is required because the transaction is notifiable.

Scroll down for the full analysis.

LBTT where a contract lets the buyer direct the transfer to someone else

This page explains a specific LBTT rule for contracts where the person contracting to buy the land can require the seller to transfer the land, or part of it, either to that buyer or to another person. This matters because LBTT can arise before legal title is transferred, and more than one person may have to consider LBTT at different stages of the arrangement.

What this rule is about

The rule deals with a three-party structure:

• A is the original owner or seller.
• B is the person who contracts with A and has the right to direct where the transfer goes.
• C is the third party to whom the land may ultimately be conveyed.

This often appears in development arrangements. For example, a landowner may contract with a developer, and the developer may be allowed to build on the land and then require completed plots to be transferred directly to individual buyers.

The key legal issue is whether there is only one land transaction, from A to C, or whether B is also treated as having acquired a chargeable interest for LBTT purposes before any transfer to C takes place.

What the official source says

The official guidance says that special rules apply where B has the right under the contract to direct a conveyance to themselves or to a third party.

If A transfers the chargeable interest to C at B’s direction, and B has neither taken possession nor completed the purchase, there is only one land transaction: the transaction from A to C.

But if B substantially performs the contract, B is treated as having acquired a chargeable interest and as having entered into a land transaction. In that case, the effective date of B’s transaction is the date of substantial performance by B.

The guidance also states that the consideration given, or to be given, by B becomes chargeable to LBTT once substantial performance occurs.

Where B later directs A to transfer a plot to C, the normal LBTT rules on contract and conveyance, completion without substantial performance, and substantial performance without completion then apply to the arrangement involving B and C and the transfer from A to C. The result is that C may also have an LBTT liability on the consideration paid to A or B, depending on the facts and timing.

The guidance cites section 11 of the Land and Buildings Transaction Tax (Scotland) Act 2013.

What this means in practice

The practical point is that LBTT does not always wait for a final disposition to the person who ends up with title.

If B goes beyond merely holding contractual rights and substantially performs the contract, LBTT can arise for B at that stage. In a development context, this may happen when B takes possession of the land and starts work, even though legal title to the completed plots will later pass directly from A to individual buyers.

That means two separate tax questions may arise:

• Has B substantially performed its contract with A, so that B has an LBTT charge based on the consideration B gives for the overall arrangement?
• When a specific plot is transferred to C, does C also have an LBTT charge on the amount paid for that plot?

The guidance indicates that the answer may be yes to both. B’s LBTT position depends on substantial performance of B’s own contract with A. C’s LBTT position depends on the later plot transaction and the normal timing rules for contract and conveyance.

So the fact that title passes directly from A to C does not necessarily mean B is ignored for LBTT. B may already have triggered LBTT by substantially performing its contract.

How to analyse it

A sensible way to analyse this kind of arrangement is to ask the following questions.

• Is there a contract between A and B under which B can require the land, or part of it, to be conveyed either to B or to someone else?
• Has B completed the purchase, taken possession, or otherwise substantially performed the contract?
• If B has not substantially performed and A conveys directly to C at B’s direction, is the only land transaction the transfer from A to C?
• If B has substantially performed, what is the effective date of B’s transaction, and what consideration is chargeable at that point?
• When A later transfers land to C, what does C pay, to whom, and when does the normal LBTT timing rule make C’s transaction effective?
• Is the transaction notifiable, so that a return is required, or is it non-notifiable under the normal LBTT rules on returns?

The notifiability point matters because the guidance expressly says that whether a return is required depends on whether the transaction is notifiable. The guidance cross-refers to separate material on that question rather than setting out the test here.

Example

Illustration: A landowner contracts with a developer. The developer pays for the right to enter the land, build houses and require the landowner to transfer completed plots directly to buyers found by the developer.

If the developer takes possession of the land and starts building, that is the point at which the guidance says the contract is substantially performed. The developer is then treated as having acquired a chargeable interest, and LBTT becomes due on the consideration the developer has agreed to give under its contract with the landowner.

Later, when a completed house is transferred by the landowner directly to an individual buyer, that buyer must consider LBTT in the usual way on the amount paid for that plot. The direct transfer from landowner to buyer does not cancel the developer’s earlier LBTT position if the developer had already substantially performed its own contract.

Why this can be difficult in practice

The difficult part is often deciding exactly when B has substantially performed the contract. The guidance gives a development example where taking possession and starting to build is the trigger, but real arrangements can be more complicated.

Another practical difficulty is separating the different transactions. A direct conveyance from A to C can make it look as if only C matters. But the legislation and guidance require you to examine whether B had already crossed the substantial performance threshold under the earlier contract.

There can also be complexity around consideration. The guidance says C may be liable on consideration paid to A or B. In multi-party development structures, the payment flows may be split across deposits, stage payments, plot prices and other contractual obligations. The legal analysis depends on what each payment is for and which transaction it relates to.

Finally, not every contract giving B some influence over a later transfer will necessarily fit neatly into this rule without close reading of the contractual terms. The exact rights B has under the contract matter.

Key takeaways

• If B can direct A to transfer land to B or to a third party, special LBTT rules may apply.
• If B substantially performs its contract, B can have an LBTT charge before any direct transfer to C.
• A later transfer from A to C may still create a separate LBTT position for C under the normal contract and conveyance rules.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: LBTT Guidance on Contracts for Third-Party Conveyance in Land Transactions

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