LBTT Guidance: Indemnity by Buyer Not Chargeable Consideration in Land Transactions

LBTT and buyer indemnities to the seller

For LBTT, a buyer’s indemnity to a seller is not treated as chargeable consideration if it covers the seller’s liability to a third party caused by the seller’s breach of an obligation relating to the land being transferred. If the rule applies, both the indemnity itself and any later payment made under it are ignored when working out LBTT.

• This is a narrow rule aimed at genuine indemnities, not every buyer assumption of risk in a land deal.
• The liability must be owed by the seller to a third party, not simply an amount the buyer owes the seller.
• The third-party liability must arise from the seller breaching an obligation connected with the land being transferred.
• If those conditions are met, neither the indemnity promise nor any payment under it counts as chargeable consideration for LBTT.
• Care is needed in practice because labels in contracts do not decide the issue; the true legal effect of the clause matters.
• If the facts do not fit this rule, the wider LBTT rules must be considered to decide whether any amount is chargeable consideration.

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 protect the seller against a possible claim from someone else. Where that indemnity relates to the seller’s liability for breaching an obligation connected with the land being transferred, the indemnity itself is not treated as chargeable consideration for LBTT. Any payment later made under that indemnity is also left out.

What this rule is about

LBTT is generally charged by reference to the chargeable consideration given for a land transaction. In broad terms, that means what the buyer gives, or agrees to give, for the land.

The rule here deals with a specific question: if the buyer agrees to indemnify the seller against a third-party liability, does that increase the consideration for LBTT?

The legislation says that, in a defined situation, the answer is no. This prevents a protective contractual promise from being treated as part of the price for the land.

What the official source says

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

• the indemnity agreement, nor
• any payment made under it

counts as chargeable consideration.

This reflects schedule 2 paragraph 14 of the Land and Buildings Transaction Tax (Scotland) Act 2013.

What this means in practice

If the clause is genuinely an indemnity of the kind described in the legislation, it should not increase the amount on which LBTT is calculated.

The point matters because sale contracts and transfer documents sometimes contain risk-allocation provisions. A buyer may agree to stand behind the seller if a third party brings a claim linked to the seller’s earlier breach of an obligation affecting the land. Without a specific rule, there could be an argument that the buyer has given something of value in return for the property.

This provision removes that indemnity from the LBTT calculation, but only where the statutory conditions are met.

The practical consequence is that you should distinguish between:

• a true indemnity of the seller against a qualifying third-party liability, and
• other forms of assumption of liability, price adjustment, reimbursement, or contractual payment, which may need separate analysis under the wider LBTT rules.

How to analyse it

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

• Is there an indemnity at all? The provision must be a real promise by the buyer to protect the seller against a liability.
• Who is the liability owed to? The rule is about liability to a third party, not simply an amount owed by the buyer to the seller.
• What caused the liability? It must arise from the seller’s breach of an obligation.
• What is that obligation connected with? The obligation must be one owed by the seller in relation to the land that is the subject of the transaction.
• What is being ignored for LBTT purposes? Both the indemnity promise itself and any payment made under it are disregarded as chargeable consideration.

If the facts do not fit that pattern, the legislation quoted here does not by itself answer whether an amount is chargeable consideration. You would then need to consider the wider LBTT rules.

Example

Illustration: a seller transfers land to a buyer. Before completion, the seller may have breached an obligation relating to the land, and a neighbouring owner may bring a claim. The buyer agrees in the purchase contract to indemnify the seller against that third-party claim. If the indemnity falls within schedule 2 paragraph 14, the indemnity is not chargeable consideration for LBTT, and if the buyer later pays the seller under that indemnity, that payment is also ignored for this purpose.

Why this can be difficult in practice

The source material states the rule briefly, but applying it can still be fact-sensitive.

The main difficulty is characterisation. Contract clauses are often labelled broadly, and not everything called an indemnity will necessarily fall within this provision. It matters whether the liability is truly:

• to a third party,
• caused by the seller’s breach, and
• connected with the land being transferred.

Another difficulty is separating this rule from other LBTT principles. A payment may be excluded under this paragraph if it is made under a qualifying indemnity, but different payments under the same transaction documents may still need to be tested under the ordinary chargeable consideration rules.

The legislation also does not turn every buyer assumption of risk into a disregard. The wording is targeted. If the buyer is simply taking on an obligation as part of the bargain for the land, or paying an amount that is in substance part of the price, that may require a different analysis.

Key takeaways

• A qualifying indemnity given by the buyer to the seller is not chargeable consideration for LBTT.
• The exclusion only applies where the indemnity relates to the seller’s liability to a third party arising from breach of an obligation connected with the land.
• You need to look carefully at the legal nature of the clause and the underlying liability, not just the label used in the contract.

This page was last updated on 24 March 2026

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

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