LBTT Guidance: Buyer Indemnity in Land Transactions Not Chargeable Consideration

When a Buyer’s Indemnity to a Seller Is Ignored for LBTT

For LBTT, a buyer’s promise to indemnify a seller is not treated as chargeable consideration in a limited situation. This applies where the seller’s liability is owed to a third party, arises from the seller’s breach of an obligation, and that obligation relates to the land being transferred. If the rule applies, both the indemnity itself and any later payment under it are left out when calculating LBTT.

• The rule is based on schedule 2 paragraph 14 of the Land and Buildings Transaction Tax (Scotland) Act 2013.
• It only applies to an indemnity from the buyer to the seller against a third-party liability.
• The third-party liability must arise because the seller breached an obligation connected with the land being sold.
• If the conditions are met, neither the indemnity promise nor any payment made under it counts as chargeable consideration for LBTT.
• Calling a contract term an “indemnity” is not enough on its own; the legal substance and facts must match the statutory rule.
• This is a narrow exclusion and does not mean that all buyer indemnities are ignored for LBTT.

Scroll down for the full analysis.

LBTT: when a buyer’s indemnity to the seller is not chargeable consideration

This page explains a narrow but important LBTT rule. Sometimes, as part of a land transaction, the buyer agrees to indemnify the seller against a liability to someone else. The legislation says that, in a specific situation, that indemnity does not count as chargeable consideration for LBTT. That matters because LBTT is charged by reference to the consideration given for the transaction.

What this rule is about

LBTT looks at what the buyer gives, or agrees to give, in return for the land transaction. In some cases that includes money, debt, the assumption of liabilities, or other forms of value.

The rule here deals with one particular kind of promise: where the buyer agrees to protect the seller against a claim from a third party. Without a specific exclusion, there could be an argument that the buyer has given something of value to the seller and that this should be included in the chargeable consideration. Schedule 2 paragraph 14 of the Land and Buildings Transaction Tax (Scotland) Act 2013 prevents that result in the circumstances it covers.

What the official source says

The official guidance states that where the buyer agrees to indemnify the seller for a liability to a third party arising from the seller’s breach of an obligation relating to the land being transferred, neither:

• the indemnity agreement itself, nor
• any payment made under that indemnity

counts as chargeable consideration for LBTT.

The source cites schedule 2 paragraph 14 of the LBTT legislation.

What this means in practice

If the rule applies, you ignore the indemnity when working out the LBTT consideration. You do not add an amount for the buyer’s promise to indemnify the seller, and you do not add a later payment made under that promise.

This is a relieving rule, but it is limited. It applies only where the seller’s liability to the third party arises from a breach of an obligation owed by the seller in relation to the land that is the subject of the transaction.

In practical terms, the key points are:

• there must be an indemnity from buyer to seller
• the seller must have a liability to a third party
• that liability must arise from the seller’s breach of an obligation
• the obligation must be connected with the land being transferred

If those elements are present, the indemnity is left out of account for LBTT consideration purposes.

How to analyse it

A sensible way to approach this is to ask the following questions.

• What exactly has the buyer promised? Is it truly an indemnity to the seller, rather than some other payment obligation?
• Who is the underlying liability owed to? The rule requires liability to a third party, not simply an adjustment between buyer and seller.
• Why has that liability arisen? The legislation points to a liability arising from the seller’s breach of an obligation.
• Is that obligation one that relates to the land being transferred? The connection to the land is essential.
• Is the amount being considered the indemnity itself, or a payment later made under it? The rule excludes both, if it applies.

It is also worth separating two issues that can easily be blurred together:

• whether the contract contains an indemnity clause
• whether the facts fall within the statutory description that makes that indemnity irrelevant for LBTT consideration

The presence of the word “indemnity” in a contract is not enough by itself. What matters is the legal substance of the obligation and the source of the seller’s liability.

Example

Illustration: A seller transfers land to a buyer. Before completion, the seller had breached an obligation connected with that land, and as a result may be liable to a neighbouring owner or another third party. As part of the sale contract, the buyer agrees to indemnify the seller against that third-party liability. If the indemnity falls within schedule 2 paragraph 14, the buyer’s promise is not chargeable consideration for LBTT, and any payment later made by the buyer under that indemnity is also ignored for LBTT purposes.

Why this can be difficult in practice

The statutory rule is short, but applying it can still be fact-sensitive.

First, not every liability connected with a property transaction will arise from the seller’s breach of an obligation in relation to the land. The factual and legal basis of the seller’s liability matters.

Secondly, there can be uncertainty over whether a payment is truly made under an indemnity of this kind, or whether it is really part of the price or another contractual adjustment. Labels in the contract do not always settle that issue.

Thirdly, the rule is an exclusion from chargeable consideration for this specific kind of indemnity. It should not be read as a general rule that all indemnities given by a buyer are ignored for LBTT.

Key takeaways

• A buyer’s indemnity to the seller can be ignored for LBTT consideration, but only in the specific circumstances set out in the legislation.
• The exclusion covers both the indemnity agreement itself and payments made under it.
• The critical questions are whether the seller’s liability is to a third party, arises from the seller’s breach, and relates to the land being transferred.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: LBTT Guidance: Buyer Indemnity in Land Transactions Not Chargeable Consideration

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