Guidance on LBTT and Works Impacting Chargeable Consideration in Land Transactions

Principles of Chargeable Consideration for Works

This section provides guidance on how the carrying out of works impacts the determination of chargeable consideration in land transactions under the Land and Buildings Transaction Tax (LBTT) in Scotland.

• Explains the concept of chargeable consideration in LBTT.
• Details how works carried out affect the calculation of this consideration.
• Guidance is based on LBTT legislation, specifically LBTT2004.
• Aims to clarify tax implications for property transactions involving works.

Understanding LBTT and the Carrying Out of Works

The Land and Buildings Transaction Tax (LBTT) is a tax applied to land transactions in Scotland. It is important for anyone involved in buying, selling, or transferring property to understand how LBTT works, especially when it comes to the carrying out of works. This article will explore the concept of chargeable consideration, how works are treated under LBTT, and what this means for property transactions.

What is LBTT?

LBTT is a tax that replaced the UK Stamp Duty Land Tax in Scotland on 1 April 2015. It applies to residential and commercial land and buildings transactions. The tax is progressive, meaning that the rate increases as the value of the property increases. This system is designed to be fairer than a flat rate, ensuring that those purchasing higher-value properties pay more tax.

For more detailed information on LBTT, you can visit the official Revenue Scotland website.

Chargeable Consideration

In the context of LBTT, chargeable consideration refers to the total value given in exchange for the land or property. This includes not only the purchase price but also any other consideration that may be part of the transaction, such as the carrying out of works.

For example, if a buyer agrees to pay £200,000 for a property and also agrees to carry out £50,000 worth of renovations as part of the deal, the chargeable consideration would be £250,000. This is because the renovations are considered part of the value being exchanged for the property.

Carrying Out of Works

The carrying out of works refers to any construction, renovation, or improvement activities that are agreed upon as part of the property transaction. Under LBTT, these works can affect the chargeable consideration and, consequently, the amount of tax due.

There are several scenarios where the carrying out of works might be relevant:

• Renovations: If a buyer agrees to renovate a property as part of the purchase agreement, the cost of these renovations is included in the chargeable consideration.
• New Builds: When purchasing a new build, any additional works agreed upon, such as landscaping or interior finishing, may be included in the chargeable consideration.
• Commercial Developments: In commercial property transactions, works such as installing new facilities or upgrading existing ones can also be part of the chargeable consideration.

For more guidance on how works are treated under LBTT, you can refer to the Revenue Scotland guidance.

Calculating LBTT with Works

When calculating LBTT, it is essential to consider the total chargeable consideration, including any works. The tax is calculated based on the value of the property and any additional consideration, such as works. The rates for LBTT are tiered, with different bands for residential and non-residential properties.

For residential properties, the rates are as follows:

• Up to £145,000: 0%
• £145,001 to £250,000: 2%
• £250,001 to £325,000: 5%
• £325,001 to £750,000: 10%
• Over £750,000: 12%

For non-residential properties, the rates are:

• Up to £150,000: 0%
• £150,001 to £250,000: 1%
• Over £250,000: 5%

For example, if a residential property is purchased for £300,000 and includes £50,000 worth of renovations, the total chargeable consideration is £350,000. The LBTT would be calculated as follows:

• £145,000 at 0% = £0
• £105,000 at 2% = £2,100
• £75,000 at 5% = £3,750
• £25,000 at 10% = £2,500

Total LBTT = £8,350

Implications for Buyers and Sellers

The inclusion of works in the chargeable consideration can have significant implications for both buyers and sellers. Buyers need to be aware that agreeing to carry out works as part of a transaction can increase the amount of LBTT they are required to pay. Sellers, on the other hand, may use the inclusion of works as a negotiating tool to increase the overall value of the transaction.

It is important for both parties to clearly outline any agreed-upon works in the contract and to understand how these will affect the tax calculation. Consulting with a tax advisor or solicitor can help ensure that all parties are aware of their obligations and that the transaction is structured in the most tax-efficient manner.

Conclusion

Understanding how the carrying out of works affects LBTT is essential for anyone involved in property transactions in Scotland. By considering the total chargeable consideration, including any works, buyers and sellers can ensure they are fully aware of their tax obligations and can plan accordingly.

For further information and guidance, you can visit the official Revenue Scotland website.

Useful article? You may find it helpful to read the original guidance here: Guidance on LBTT and Works Impacting Chargeable Consideration in Land Transactions

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