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

LBTT and Inheritance Tax Paid by the Buyer

For certain land transfers in Scotland, inheritance tax paid or taken on by the buyer is not counted as chargeable consideration for LBTT. This applies to some lifetime transfers of value and to land passing by will or intestacy, but only the inheritance tax element is excluded and the rest of the transaction must still be considered under the normal LBTT rules.

• The rule comes from schedule 2, paragraph 15 of the Land and Buildings Transaction Tax (Scotland) Act 2013.
• It applies to a transfer of value under section 3 of the Inheritance Tax Act 1984, or to land passing by will or intestacy from a deceased person’s estate.
• If the buyer becomes liable for inheritance tax, agrees to pay it, or actually pays it, that does not count as LBTT chargeable consideration.
• This prevents inheritance tax from being treated as part of the price paid for the land.
• The transaction may still be within LBTT, but any other payment, debt, or obligation given by the buyer must be tested separately under the usual rules.

Scroll down for the full analysis.

LBTT: when a buyer pays inheritance tax connected with the transfer

This page explains a narrow but important LBTT rule. Sometimes land passes as part of a lifetime transfer, a will, or intestacy, and the person receiving the land also pays inheritance tax connected with that transfer. The rule here says that this inheritance tax liability is not treated as chargeable consideration for LBTT. That matters because LBTT is charged by reference to chargeable consideration.

What this rule is about

LBTT looks at what the buyer gives, or is treated as giving, for the land transaction. In many cases that is straightforward, such as paying a purchase price. But some transactions involve estates, gifts, or transfers of value for inheritance tax purposes. In those cases, a question can arise: if the buyer takes on inheritance tax, or actually pays it, does that count as part of the price for LBTT?

The rule covered here answers that question for certain inheritance-tax-related transfers. It prevents the buyer’s inheritance tax liability or payment from being added into the LBTT consideration.

What the official source says

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

It applies 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 is made by will or under the law of intestacy, where the interest formed part of the deceased person’s estate immediately before death.

If, in one of those transactions, the buyer:

• is or becomes liable to pay inheritance tax due in respect of the transfer or disposition,
• agrees to pay that inheritance tax, or
• does in fact pay that inheritance tax,

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

In short, inheritance tax borne by the buyer in these situations does not itself count as consideration for the land transaction.

What this means in practice

This rule stops an inheritance-tax burden from being treated like part of the purchase price.

Without a rule of this kind, there could be an argument that if the buyer takes on a tax liability that would otherwise fall elsewhere, that assumption of liability is something of value given for the land. Paragraph 15 says that, in the situations it covers, that is not how LBTT should work.

The practical effect is that you do not add the inheritance tax amount into the LBTT consideration simply because the buyer pays it, agrees to pay it, or becomes liable for it.

This does not mean the whole transaction is automatically outside LBTT. The transaction still needs to be analysed under the normal LBTT rules. The point here is narrower: the inheritance tax element is excluded from chargeable consideration.

How to analyse it

A sensible way to approach the issue is to ask these questions:

• Is there a land transaction involving a chargeable interest for LBTT purposes?
• Does the transaction fall within one of the two categories mentioned in the rule: a transfer of value under section 3 of the Inheritance Tax Act 1984, or a disposition by will or intestacy?
• Is there inheritance tax due in respect of that transfer or disposition?
• Has the buyer become liable for that inheritance tax, agreed to pay it, or actually paid it?
• If so, are you trying to treat that inheritance tax burden as part of the chargeable consideration? If yes, paragraph 15 says not to do so.

The key point is to identify exactly what the buyer is giving for the land. If part of the analysis is simply that the buyer is bearing inheritance tax arising on the transfer or disposition, this rule removes that amount from the LBTT consideration calculation.

Example

Illustration: land in Scotland passes to an individual under a will. Under the arrangements for the estate, that individual ends up paying inheritance tax due in respect of the deceased’s estate so far as it relates to that disposition. For LBTT purposes, that inheritance tax payment is not treated as chargeable consideration for the acquisition of the land.

The same principle applies if the buyer has not yet paid the tax but has become liable for it, or has agreed to pay it.

Why this can be difficult in practice

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

First, the transaction must fall within the types described in the legislation. Not every transfer connected with a death or estate will automatically raise the same issue in the same way.

Second, the rule only addresses the inheritance tax element. It does not say that any other payment, debt assumption, or obligation undertaken by the buyer must also be ignored. If the buyer gives some other form of consideration, that still has to be tested under the ordinary LBTT rules.

Third, the source is guidance summarising the statutory rule. The legal effect comes from the legislation itself, not from the wording of the guidance page.

Key takeaways

• Where the rule applies, inheritance tax borne by the buyer is not chargeable consideration for LBTT.
• This covers the buyer becoming liable for the tax, agreeing to pay it, or actually paying it.
• The exclusion is specific to the inheritance tax element; the rest of the transaction still needs normal LBTT analysis.

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 Liabilities in Land Transactions

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