Guidance on LBTT when buyer assumes inheritance tax liability in land transactions.

Principles and Concepts of LBTT and Inheritance Tax Liability

This page provides guidance on the Land and Buildings Transaction Tax (LBTT) in scenarios where the buyer assumes an inheritance tax liability. It outlines how such liabilities affect the chargeable consideration in land transactions.

Explains the interaction between LBTT and inheritance tax.
Details the implications of a buyer bearing inheritance tax liabilities.
Clarifies the concept of chargeable consideration in these transactions.
Provides legal references and guidance under LBTT2013.

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Guidance on LBTT when buyer assumes inheritance tax liability in land transactions.

Understanding Land and Buildings Transaction Tax (LBTT) and Inheritance Tax in Scotland

In Scotland, the Land and Buildings Transaction Tax (LBTT) is a tax applied to residential and commercial land and property transactions. This article explores how LBTT interacts with inheritance tax liabilities, particularly when a buyer assumes responsibility for such liabilities.

What is LBTT?

LBTT is a tax levied on property transactions in Scotland. It replaced the UK Stamp Duty Land Tax in Scotland from April 2015. The tax applies to both residential and non-residential land and property transactions. The amount of LBTT payable depends on the purchase price of the property or land.

Residential Property Rates

Up to £145,000: 0%
£145,001 to £250,000: 2%
£250,001 to £325,000: 5%
£325,001 to £750,000: 10%
Over £750,000: 12%

For more detailed information on LBTT rates, visit the Revenue Scotland LBTT page.

Non-Residential Property Rates

Up to £150,000: 0%
£150,001 to £250,000: 1%
£250,001 to £1,000,000: 5%
Over £1,000,000: 6%

Inheritance Tax in Scotland

Inheritance tax is a levy on the estate (property, money, and possessions) of someone who has died. In the UK, including Scotland, the standard inheritance tax rate is 40%, applied to the part of the estate that exceeds the tax-free threshold of £325,000.

For more information on inheritance tax, you can visit the UK Government’s Inheritance Tax page.

LBTT and Inheritance Tax Liabilities

In certain situations, a buyer may agree to take on the inheritance tax liability of a property as part of the transaction. This can affect the chargeable consideration for LBTT purposes.

Chargeable Consideration

The term ‘chargeable consideration’ refers to the total amount paid for a property, including any money or other value transferred as part of the transaction. When a buyer assumes an inheritance tax liability, this liability is considered part of the chargeable consideration for LBTT purposes.

For example, if a property is sold for £300,000 and the buyer agrees to take on an inheritance tax liability of £20,000, the chargeable consideration for LBTT purposes would be £320,000.

Impact on LBTT Calculation

The inclusion of inheritance tax liabilities in the chargeable consideration can affect the LBTT payable. Using the previous example, the LBTT would be calculated based on the £320,000 chargeable consideration rather than the £300,000 sale price.

This means the LBTT payable would be:

£145,000 at 0% = £0
£105,000 at 2% = £2,100
£70,000 at 5% = £3,500

Total LBTT payable: £5,600

Practical Considerations

When dealing with property transactions involving inheritance tax liabilities, it is important for both buyers and sellers to understand the implications for LBTT. Here are some practical considerations:

Legal Advice

Engaging a solicitor or tax advisor can help ensure that all aspects of the transaction are handled correctly, including the calculation of LBTT and the handling of inheritance tax liabilities.

Clear Agreements

It is important for the buyer and seller to clearly agree on who will bear the inheritance tax liability and how it will affect the transaction. This should be documented in the sale agreement to avoid any misunderstandings.

Revenue Scotland Guidance

Revenue Scotland provides guidance on how to determine the chargeable consideration in transactions where the buyer assumes inheritance tax liabilities. This guidance can be a valuable resource for understanding how these transactions should be handled.

For more detailed guidance, visit the Revenue Scotland guidance page.

Conclusion

Understanding the interaction between LBTT and inheritance tax liabilities is important for anyone involved in property transactions in Scotland. By considering the chargeable consideration and seeking appropriate advice, buyers and sellers can ensure that they comply with tax obligations and avoid unexpected costs.

For further reading and resources, consider exploring the following links: