Guidance on LBTT for Buyers with Inheritance Tax Liability in Land Transactions

LBTT and inheritance tax on land transfers

When land is given as a gift, or passes under a will or intestacy, a buyer may pay inheritance tax linked to that transfer. For LBTT purposes, that inheritance tax liability or payment is ignored and does not count as chargeable consideration. However, any other payment or liability connected with the land must still be considered under the normal LBTT rules.

• This rule is based on schedule 2, paragraph 15 of the Land and Buildings Transaction Tax (Scotland) Act 2013.
• It applies where the land transfer is a transfer of value for inheritance tax purposes, or where land passes on death under a will or intestacy.
• If the buyer becomes liable for the inheritance tax, agrees to pay it, or actually pays it, that does not count as LBTT consideration.
• The inheritance tax amount should therefore not be added into the LBTT calculation for the land transaction.
• The rule does not remove LBTT from the whole transaction if there is other consideration, such as a separate payment for the land or another liability taken on by the buyer.
• In practice, care is needed to identify whether a payment is truly inheritance tax or some other estate-related payment, as only the inheritance tax element is ignored under this rule.

Scroll down for the full analysis.

LBTT: when a buyer pays inheritance tax on the transfer of land

This page explains a narrow but important LBTT rule. Sometimes land passes as a gift, or under a will or intestacy, and the person receiving the land also pays some or all of the inheritance tax connected with that transfer. The rule here is that this inheritance tax payment is not treated as chargeable consideration for LBTT purposes. That matters because LBTT is charged by reference to chargeable consideration, and this rule stops an inheritance tax liability from being counted as part of the price for the land.

What this rule is about

LBTT applies to chargeable consideration given for a land transaction. In many cases, the issue is straightforward: if you pay money for land, that payment is consideration. But some transactions involving land are not ordinary sales. Land may be transferred as part of a lifetime gift, or pass on death under a will or the intestacy rules. In those situations, inheritance tax may arise.

The question this rule answers is simple: if the person acquiring the land pays inheritance tax connected with that transfer, does that tax payment count as consideration for LBTT?

According to the legislation referred to in the official guidance, the answer is no, provided the transaction falls within the types described.

What the official source says

The official material refers to schedule 2 paragraph 15 of the Land and Buildings Transaction Tax (Scotland) Act 2013.

It says that where there is a land transaction that is either:

• a transfer of value within section 3 of the Inheritance Tax Act 1984, or
• a disposition of a chargeable interest that takes effect by will or under the law of intestacy from the estate of a person immediately on that person’s death,

and the buyer:

• is or becomes liable to pay inheritance tax due in respect of that transfer or disposition,
• agrees to pay it, or
• actually pays it,

that liability, agreement, or payment is ignored for LBTT chargeable consideration purposes.

In other words, the inheritance tax element is left out when working out the consideration for the land transaction.

What this means in practice

This rule prevents a buyer from being treated as giving consideration merely because they take on, agree to meet, or actually meet an inheritance tax bill linked to the transfer of the land.

That is important because, without a rule of this kind, taking on someone else’s tax liability could potentially be viewed as something of value given in return for the land. The legislation says that, in these inheritance-tax-related situations, it is not to be counted that way.

The practical effect is that you should not add the inheritance tax amount into the LBTT consideration calculation just because the buyer pays it.

This does not mean the whole transaction is automatically outside LBTT. It means only that this particular item, the inheritance tax liability or payment, is not chargeable consideration. If there is some other form of consideration for the land, that still needs to be analysed under the normal LBTT rules.

How to analyse it

A sensible way to approach this issue is to ask the following questions:

• Is there a land transaction involving a chargeable interest?
• Does the transaction arise either from a transfer of value within the inheritance tax legislation or from a transfer on death by will or intestacy?
• Has the buyer become liable for inheritance tax, agreed to pay it, or actually paid it in respect of that transfer?
• If so, are you trying to decide whether that inheritance tax element forms part of the chargeable consideration?

If the answer to those questions is yes, the rule says that the inheritance tax liability, agreement, or payment is ignored as chargeable consideration.

You should then look separately at whether there is any other consideration. For example, if the buyer also pays money for the land or assumes some other liability, those points are not dealt with by this specific rule and must be considered under the wider LBTT framework.

Example

Illustration: A person becomes entitled to land under a will. Under the arrangements for administering the estate, that person pays inheritance tax attributable to the transfer. For LBTT purposes, that inheritance tax payment is not treated as chargeable consideration for the acquisition of the land.

If, however, the same person also pays a separate sum to another beneficiary or to the estate for the land, that separate payment would need its own LBTT analysis. This rule only tells you how to treat the inheritance tax element.

Why this can be difficult in practice

The statutory rule is short, but real cases may still need careful analysis.

One difficulty is identifying exactly what the buyer is paying and why. A payment may be described loosely as “tax” or “estate expenses”, but the legal character of the payment matters. This rule applies to inheritance tax due in respect of the relevant transfer or disposition. It does not automatically cover every payment connected with an estate.

Another difficulty is separating this rule from the wider LBTT position. The fact that inheritance tax is ignored does not answer whether there is some other consideration in the transaction. In mixed or negotiated estate arrangements, that distinction can matter.

There can also be a technical question about whether the transaction falls within the categories identified in the legislation, especially where the transfer is part of a broader arrangement rather than a straightforward inheritance or gift.

Key takeaways

• If a buyer pays inheritance tax on a relevant transfer of land, that inheritance tax payment is not chargeable consideration for LBTT.
• The rule applies to certain transfers of value and to land passing on death by will or intestacy.
• You still need to check whether any other payment, assumption of liability, or benefit counts as consideration under the normal LBTT rules.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Guidance on LBTT for Buyers with Inheritance Tax Liability in Land Transactions

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