LBTT Guidance: Chargeable Consideration Rules for Construction, Improvement, and Repair Works

LBTT and when building works count as chargeable consideration

For LBTT, the value of building, improvement or repair works can count as part of the price paid for land, even if no cash is paid for them. That value is left out only if the works are done after the transaction’s effective date, on the land being acquired, and the deal does not require the seller or a connected person to carry them out. Where land and building contracts are linked, Revenue Scotland will look at the overall substance of the arrangement, not just the paperwork.

• Non-cash consideration can include a buyer’s promise to carry out construction, improvement, repair or other value-enhancing works.
• The value of those works is excluded from LBTT only if all statutory conditions are met; otherwise their open market value must be included.
• A key risk factor is where the transaction requires the works to be done by the seller or someone connected with the seller.
• Separate contracts for land and building services may still be treated as one taxable package if they amount in substance to buying completed property.
• If the contracts are genuinely separate, LBTT is usually charged only on the land element, apportioned on a just and reasonable basis.
• Difficult cases often turn on the real commercial effect of the deal, valuation of the works, and timing where there has been substantial performance before completion.

Scroll down for the full analysis.

LBTT and building works: when the cost of works counts as chargeable consideration

This page explains when the value of construction, improvement or repair works is included in chargeable consideration for Land and Buildings Transaction Tax (LBTT). The point matters because some land deals are structured so that the buyer pays partly in cash and partly by agreeing to carry out works. In some cases the value of those works is ignored for LBTT. In others, it must be brought into the tax calculation.

What this rule is about

LBTT is charged on the chargeable consideration given for a land transaction. Consideration is not limited to money. It can include non-cash value, including an agreement to carry out works.

The legislation sets out a specific rule for works of construction, improvement or repair of a building, or other works that enhance the value of land. The rule decides when the value of those works is excluded from chargeable consideration and when it is included.

This is particularly relevant where:

• the buyer agrees to develop or improve the property as part of the deal,
• the seller requires certain works to be done, or
• there are separate but related contracts for land and building services.

The guidance also notes that this rule is subject to a separate rule for arrangements involving certain public or education bodies.

What the official source says

The official guidance says that where all or part of the consideration for a land transaction consists of carrying out works, the value of those works is excluded from chargeable consideration only to the extent that all of the following conditions are met:

• the works are carried out after the effective date of the transaction,
• the works are carried out on land acquired or to be acquired under the transaction, meaning land in which a major interest is being acquired, and
• it is not a condition of the transaction that the works are carried out by the seller or by a person connected with the seller.

If those conditions are not met, the value of the works must be taken into account as chargeable consideration.

The value of the works is measured by the amount that would have to be paid on the open market for those works.

The guidance also deals with a contract that is substantially performed before formal completion and then later completed by conveyance. In that situation there may be two notifiable transactions. For the second transaction, the first condition above is treated as met if it was met for the first transaction.

Finally, the guidance warns that where there is a contract for the sale of land and a contract for building services, Revenue Scotland will consider whether, taken together, they amount in substance to the sale of land with completed buildings. If they do, the total consideration for both will be chargeable. If not, LBTT will generally be calculated only on the consideration attributable to the land transferred, apportioned on a just and reasonable basis, unless the contracts are so closely linked that one cannot stand without the other.

What this means in practice

The key practical point is that not every promise to carry out works increases the LBTT bill.

If the buyer acquires land and then, after the effective date, carries out works on that land for its own purposes, the value of those works may fall outside chargeable consideration, provided the works are not required to be carried out by the seller or someone connected with the seller.

But if the arrangement is really part of the price being given for the land, the value of the works may need to be included.

The rule is therefore aimed at distinguishing between:

• post-acquisition works done by the buyer on its own land, which may be ignored for LBTT, and
• works that form part of what the buyer is giving the seller under the bargain, which may count as consideration.

The third condition is especially important. If the transaction requires the works to be carried out by the seller, or by someone connected with the seller, that points strongly towards the value being taxable consideration.

The guidance on linked land and building contracts is also important in development transactions. Separate documents do not necessarily mean separate LBTT treatment. If the overall arrangement is effectively a purchase of a completed property, the whole package may be taxed as such.

How to analyse it

A sensible way to analyse the issue is to ask these questions in order:

• Is any part of what the buyer is giving for the land a promise to carry out works rather than simply paying money?
• What exactly are the works: construction, improvement, repair, or other value-enhancing works?
• Are the works carried out after the effective date of the transaction?
• Are the works carried out on the land being acquired under the transaction?
• Is it a condition of the transaction that the works are carried out by the seller or a person connected with the seller?
• If one or more conditions are not met, what is the open market value of the works?
• Are there separate land and development contracts, and if so, do they really operate independently, or are they so interdependent that together they amount to the sale of land with completed buildings?

Where there are separate contracts, the guidance suggests looking closely at how tightly they are tied together. A strong indicator of a single taxable package is that failure of one contract prevents completion of the other or makes the other invalid. If the contracts are genuinely separate, apportionment may be appropriate, but it must be on a just and reasonable basis.

Example

Illustration: A buyer agrees to buy a plot of land. After the effective date, the buyer plans to build on the plot using its own contractor. The sale contract does not require the seller, or anyone connected with the seller, to carry out those works. On the guidance, the value of those post-acquisition works may be left out of chargeable consideration.

Now change the facts. The buyer signs one agreement to buy the land and another under which the seller’s connected company must construct the building as part of the overall deal. If the arrangements are effectively a purchase of the completed development, or if the condition about the seller or a connected person is not met, the value of the works is much more likely to be included in chargeable consideration.

Why this can be difficult in practice

The difficult cases are usually not about the wording of the rule itself, but about characterising the arrangement.

In particular:

• It may be unclear whether the works are truly part of the consideration for the land, or simply works the buyer chooses to carry out after acquisition.
• Separate contracts may look independent on paper but operate as a single commercial package in reality.
• The question whether a contract is for land plus services, or for land with completed buildings, can be highly fact-sensitive.
• Valuing the works on an open market basis may itself require judgement.
• Where there has been substantial performance before completion, the timing rules can be harder to apply unless the transaction history is carefully traced.

The guidance gives a general approach, but the result will often turn on the exact contractual obligations and how the deal works in substance.

Key takeaways

• The value of works can be chargeable consideration for LBTT, but it is excluded if all the statutory conditions are met.
• Timing, where the works are carried out, and who is obliged to carry them out are central to the analysis.
• Separate land and building contracts are not automatically taxed separately; the overall substance of the arrangement matters.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: LBTT Guidance: Chargeable Consideration Rules for Construction, Improvement, and Repair Works

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