Understanding LBTT and Chargeable Consideration

Land and Buildings Transaction Tax (LBTT) is a tax applied to land transactions in Scotland. When buying or leasing property, it’s important to understand how the chargeable consideration is determined, especially when dealing with contingent, uncertain, or unascertained amounts. This article will guide you through these concepts, providing clarity on how they affect your tax obligations.

What is Chargeable Consideration?

Chargeable consideration is the total amount paid or given for a property transaction. It includes money, goods, services, or any other consideration. Understanding what constitutes chargeable consideration is key to calculating the correct amount of LBTT due.

For example, if you purchase a house for £300,000, the chargeable consideration is £300,000. However, if part of the payment is contingent on future events, the calculation becomes more complex.

Contingent Consideration

Contingent consideration refers to payments that depend on future events. These events must occur for the payment to be made. For instance, if a property seller agrees to receive an additional £10,000 if planning permission is granted, this amount is contingent consideration.

In such cases, the LBTT calculation must account for the possibility of the event occurring. The tax is initially calculated on the assumption that the contingent event will happen. If the event does not occur, adjustments can be made later.

Uncertain Consideration

Uncertain consideration arises when the amount to be paid is not fixed at the time of the transaction. This can occur in situations where the price is linked to future variables, such as the turnover of a business being sold.

For example, if a property is sold with a clause that the buyer will pay an additional amount based on the business’s future earnings, this is uncertain consideration. The LBTT is calculated based on a reasonable estimate of the future amount, with adjustments made once the actual amount is known.

Unascertained Consideration

Unascertained consideration involves payments where the exact amount cannot be determined at the time of the transaction. This often occurs in transactions involving complex financial arrangements or where the payment is linked to future performance.

For instance, if a property deal includes a payment based on the future value of shares, this is unascertained consideration. The LBTT is calculated using the best estimate of the future payment, with the possibility of adjustments once the actual amount is determined.

Adjustments and Reassessments

When dealing with contingent, uncertain, or unascertained consideration, adjustments and reassessments are common. If the actual consideration differs from the estimated amount, the LBTT can be recalculated.

For example, if a contingent payment does not occur, the taxpayer can apply for a refund of the overpaid tax. Conversely, if the actual payment exceeds the estimate, additional tax may be due.

Practical Examples

To better understand these concepts, let’s consider a few practical examples:

• Example 1: A buyer agrees to pay £500,000 for a property, with an additional £50,000 if a certain planning permission is granted. The initial LBTT is calculated on £550,000. If the permission is not granted, the buyer can seek a refund for the tax paid on the £50,000.
• Example 2: A business property is sold with a clause that the buyer will pay 5% of the business’s turnover for the next two years. The LBTT is calculated based on an estimate of the turnover. Once the actual turnover is known, adjustments are made.
• Example 3: A property transaction includes a payment based on the future value of shares. The LBTT is initially calculated using an estimated share value. If the final share value differs, the tax is reassessed.

Conclusion

Understanding contingent, uncertain, and unascertained consideration is essential for accurately calculating LBTT. By recognising these elements, taxpayers can ensure they meet their obligations and avoid potential penalties. For more detailed guidance, visit the Revenue Scotland website.