LBTT Guidance on Contracts for Third-Party Land Conveyance Transactions

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

Where a contract allows the buyer to tell the seller to transfer land either to the buyer or to a third party, LBTT treatment depends mainly on whether the buyer has substantially performed the contract. If the buyer has not substantially performed, there is usually only one land transaction from the seller to the third party. If the buyer has substantially performed, the buyer may be treated as having acquired a chargeable interest first, which can create an earlier LBTT charge as well as a separate later charge for the final recipient.

• This rule commonly applies in development and building arrangements where a developer controls who will receive completed plots or homes.
• If the seller transfers the land directly to the third party and the buyer has neither completed nor substantially performed, there is normally only one LBTT transaction: seller to third party.
• If the buyer substantially performs the contract, for example by taking possession and starting building works, the buyer is treated as having its own LBTT transaction at that date.
• The buyer’s LBTT position is based on the consideration the buyer gives, or agrees to give, to the seller, and not just on whether legal title ever passes through the buyer.
• The third party may still have a separate LBTT liability when the property is later conveyed, taking account of consideration paid to the seller or the buyer.
• In practice, the key issues are whether substantial performance has happened, the effective date of that event, the amount of consideration, and whether each transaction is notifiable.

Scroll down for the full analysis.

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

This page explains a specific LBTT rule for contracts where one party can require the seller to transfer the land either to that party or to another person. This often matters in development structures, building licence arrangements, and similar transactions where a developer controls who ultimately receives the completed plots. The rule can create more than one taxable land transaction, and the timing of tax depends heavily on whether the intermediary has substantially performed the contract.

What this rule is about

The rule deals with a three-party structure:

• A is the original seller or landowner.
• B contracts with A and has the right to direct who receives the land.
• C is the person to whom A eventually conveys the land, if B gives that direction.

The key question is whether B has merely arranged for A to transfer the land directly to C, or whether B is treated for LBTT purposes as having acquired an interest first. That distinction matters because it affects:

• whether there is one land transaction or more than one
• who is liable for LBTT
• when the effective date arises
• what consideration is taxed

This is part of the wider LBTT treatment of contracts, completion, and substantial performance.

What the official source says

Revenue Scotland says that special rules apply where B has the right under a contract with A to direct a conveyance either to B or to a third party, C.

If A conveys the chargeable interest to C at B’s request or direction, and B has neither taken possession nor completed, 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 says that the consideration given, or to be given, by B is charged to LBTT once substantial performance occurs.

Where B directs A to convey 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 between B and C and to the conveyance from A to C. The result is that C may also be liable to LBTT on the consideration paid to A or B, either on completion or on substantial performance.

The source refers to section 11 of the Land and Buildings Transaction Tax (Scotland) Act 2013.

What this means in practice

The practical effect is that a development-style arrangement can trigger LBTT before the final buyers take title.

If B has done enough to amount to substantial performance, B cannot avoid LBTT merely because legal title never passes through B and goes straight from A to C. For LBTT purposes, B is treated as having acquired an interest at that earlier stage.

In practice, this means:

• B may have to account for LBTT when B substantially performs the contract with A, for example by taking possession.
• C may later have a separate LBTT liability when C acquires the property from A under B’s direction.
• The direct transfer from A to C does not necessarily mean there is only one tax charge.

This is particularly important in staged developments. A developer may enter land, start works, and later nominate individual buyers. Once the developer has substantially performed, LBTT can arise on the developer’s agreed consideration to the landowner even if the completed homes are never conveyed to the developer personally.

How to analyse it

A sensible way to analyse the arrangement is to ask these questions in order.

• Is there a contract between A and B under which B can direct the conveyance to B or to someone else?
• Has A conveyed the land or a plot directly to C at B’s direction?
• Before that conveyance, did B complete the contract or substantially perform it?
• If B substantially performed, what was the date of that substantial performance? That is likely to be the effective date for B’s transaction.
• What consideration did B give, or agree to give, to A? That is the amount on which B’s LBTT position is tested.
• Is B’s transaction notifiable?
• What consideration is C paying, and to whom? C’s LBTT position must then be considered separately under the ordinary contract and conveyance rules.

The source gives one clear indicator of substantial performance in this context: where B takes possession of the land and starts building. That will often be the critical point in a development agreement.

You should also keep the two possible tax charges separate in your analysis:

• B’s possible deemed acquisition from A once B substantially performs.
• C’s acquisition when A conveys to C, taking into account any consideration paid to A or B.

Example

Illustration based on the Revenue Scotland example.

Yellow owns land. Orange enters into a contract with Yellow under which Orange can build new homes and require Yellow to transfer completed homes to buyers found by Orange. Orange agrees to pay Yellow £1.5 million, including a £150,000 deposit.

Orange enters onto the land and starts building. At that point, Orange has substantially performed the contract. The effective date for Orange’s transaction is that date, and LBTT is charged on the £1.5 million consideration agreed to be paid by Orange.

Later, Yellow transfers individual completed homes directly to the buyers identified by Orange. Those buyers must then consider their own LBTT liability on their purchases at the appropriate rates.

The important point is that the direct transfer from Yellow to the buyers does not prevent Orange from already having had an LBTT charge when Orange substantially performed the original contract.

Why this can be difficult in practice

The main difficulty is deciding whether B has substantially performed the contract. That is a fact-sensitive issue, and it can change the whole tax result.

In some cases, it will be obvious, such as where B has taken possession and begun development. In others, the contractual rights may be more limited, or access to the land may be tightly controlled, making it less clear whether substantial performance has happened.

Another difficulty is that readers sometimes assume there can only be one LBTT charge because legal title moves directly from A to C. The guidance shows that this is not always right. A deemed acquisition by B can arise earlier, and C may still have a separate LBTT position later.

It can also be easy to overlook the need to analyse notifiability separately. The guidance says whether a return is required depends on whether the transaction is notifiable. That is a distinct question from whether a land transaction exists.

Finally, where C pays consideration partly to A and partly to B, the source indicates that C’s LBTT liability must be considered by looking at the consideration paid to A or B. The exact application can therefore depend on the transaction documents and payment flows.

Key takeaways

• If B can direct A to transfer land to C, LBTT does not depend only on who receives legal title.
• If B substantially performs the contract, B may be treated as acquiring a chargeable interest and may owe LBTT at that point.
• C may still have a separate LBTT liability when A later conveys the property to C.

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 Land Conveyance Transactions

View all LBTT Guidance Pages Here