LBTT Guidance on Transactions Involving Public or Educational Bodies in Scotland
LBTT treatment of sale-and-leaseback arrangements for public and educational bodies
Special LBTT rules can apply in Scotland where a qualifying public or educational body transfers land to a non-qualifying party and receives a leaseback, together with works or services. If the conditions are met, the leaseback, works and services are ignored when working out chargeable consideration for the main land transfer, so LBTT is often charged only on any cash premium or rent. The leaseback itself will also often have no chargeable consideration, but the transaction may still need to be notified.
- The rule applies only if the transferor is a qualifying public body, grant-aided school or post-16 education body, and the other party is non-qualifying.
- There must be a main transfer of land by the qualifying body, a leaseback of all or substantially all of that land, and an agreement by the other party to carry out works or provide services.
- For the main transfer, and any transfer of surplus land, the leaseback, building works and services are left out of the LBTT consideration calculation.
- In most cases, this means LBTT on the main transfer is based only on cash amounts actually paid by the non-qualifying party, such as a premium or rent.
- For the leaseback, the original land transfer, any surplus land transfer and money paid for the works or services are also ignored, so there is usually no chargeable consideration for the leaseback.
- The rule does not decide whether the transaction is notifiable, so a filing obligation may still arise even if little or no chargeable consideration remains.
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Read the original guidance here:
LBTT Guidance on Transactions Involving Public or Educational Bodies in Scotland
LBTT and sale-and-leaseback style arrangements involving public or educational bodies
This page explains a special LBTT rule for certain transactions involving public bodies, grant-aided schools, and post-16 education bodies in Scotland. The rule matters because, where it applies, some elements that would otherwise look like consideration for a land transaction are ignored for LBTT purposes. In practice, that can mean LBTT is charged only on cash amounts such as a premium or rent, rather than on the value of works, services, or the leaseback itself.
What this rule is about
The legislation deals with a particular type of structured transaction. A qualifying public or educational body transfers land, or grants or assigns a lease, to another person. In return, that other person grants a lease back of the same land, or substantially all of it, and also agrees to carry out works or provide services to the public or educational body.
This is often the kind of arrangement used where a public sector or education body wants a private sector counterparty to fund, develop, manage, or improve property while allowing the public or educational body to continue occupying or using it.
Without a special rule, it could be argued that the leaseback, the building works, or the services form part of the consideration for the land transfer and should therefore be brought into the LBTT calculation. Schedule 2 paragraph 17 of the LBTT(S)A 2013 changes that result for qualifying arrangements.
What the official source says
The source says that certain arrangements involving a qualifying body do not count as chargeable consideration to the extent set out in the legislation.
The qualifying bodies are:
- public bodies within paragraph 4 of schedule 16 of the LBTT(S)A 2013,
- grant-aided schools within section 135(1) of the Education (Scotland) Act 1980, and
- post-16 education bodies within section 35(1) of the Further and Higher Education (Scotland) Act 2005.
The arrangement must involve all of the following:
- a transfer of ownership, or the grant or assignment of a lease, of land by the qualifying body A to a non-qualifying body B, called the main transfer,
- as whole or part consideration for that main transfer, B grants A a lease or sub-lease of the whole, or substantially the whole, of that land, called the leaseback,
- B undertakes to carry out works or provide services to A, and
- some or all of what A gives B for those works or services is money.
The legislation can also apply whether or not there is a transfer, lease, or assignment of other land by A to B as a transfer of surplus land.
Where those conditions are met, the following are ignored as chargeable consideration for the main transfer or any transfer of surplus land:
- the leaseback,
- the carrying out of building works by B for A, and
- the provision of services by B to A.
The source explains that this will generally mean LBTT on the main transfer, and on any transfer of surplus land, is charged only on any cash premium or rent paid by B.
It also says that, for the leaseback, the chargeable consideration does not include:
- the main transfer,
- any transfer of surplus land, and
- the money paid by A to B for the works or services.
The practical effect, as stated in the source, is that there will generally be no chargeable consideration for the leaseback.
However, the source also makes an important separate point: these special rules do not apply when deciding whether a land transaction is notifiable. In other words, a transaction may still need to be notified even though the chargeable consideration is reduced or eliminated under this provision.
What this means in practice
If the arrangement fits the statutory conditions, you do not simply total up everything of value moving between the parties and treat it all as LBTT consideration.
Instead, for the main transfer and any transfer of surplus land, you leave out:
- the fact that B grants a lease back to A,
- the value of building works B agrees to perform for A, and
- the value of services B agrees to provide to A.
That can make a major difference. In many development or public infrastructure style arrangements, the economically significant part of the deal may be the works package or service package rather than a straightforward land price. This rule prevents those non-cash elements from being treated as chargeable consideration for the relevant land transfer, provided the statutory conditions are met.
For the leaseback, the rule works in the opposite direction. You also ignore the land transferred by A to B, any surplus land transfer, and the money A pays B for the works or services. So the leaseback will often have no chargeable consideration at all.
The source says “generally” because the result depends on what other consideration is actually given. If B pays a cash premium or rent for the main transfer or surplus land transfer, that amount may still be chargeable. The rule does not create a blanket exemption for every payment connected with the overall arrangement.
How to analyse it
A sensible way to analyse the transaction is to work through the following questions.
Is A a qualifying body?
You need to confirm that the transferor falls within one of the statutory categories. This is a threshold issue. If A is not a qualifying body, the special rule does not apply.
Is B a non-qualifying body?
The source describes the arrangement as one where A transfers to a non-qualifying body B. Check the status of both parties.
Is there a main transfer of land by A to B?
This can be a transfer of ownership, or the grant or assignment of a lease. The rule is not limited to freehold-style transfers.
Is there a leaseback by B to A of the whole, or substantially the whole, of that land?
This is critical. The leaseback must relate to the whole, or substantially the whole, of the land comprised in the main transfer. If the leaseback covers materially less, the rule may not apply.
Is the leaseback given as whole or part consideration for the main transfer?
There must be a real connection between the main transfer and the leaseback as part of the bargain.
Has B undertaken to carry out works or provide services to A?
The arrangement must include this feature. The rule is aimed at transactions where the non-qualifying body is not just taking land, but also delivering works or services.
Is some or all of A’s consideration for those works or services money?
The source includes this as part of the statutory conditions. It is not enough simply to have works or services in the background; the arrangement must fit the legislative structure.
Is there also a transfer of surplus land?
If so, the same special consideration rules may apply to that transfer as well. The source makes clear that the surplus land element does not have to be documented in a separate transaction.
What consideration remains chargeable after the statutory exclusions are applied?
Usually this will mean identifying any cash premium or rent actually paid by B for the main transfer or surplus land transfer.
Separately, is the transaction notifiable?
Do not assume that because little or no chargeable consideration remains, there is no filing obligation. The source expressly says the special consideration rules do not apply when deciding notifiability.
Example
This is an illustration based on the structure described in the source.
A Scottish educational body transfers a site to a private developer. As part of the same overall arrangement, the developer grants the educational body a lease back of substantially all of the site so the body can continue using it. The developer also agrees to construct new facilities and provide certain services. The educational body pays money for those works and services. In addition, the developer pays a cash premium for a small surplus parcel that it will retain for its own use.
If the statutory conditions are met, the leaseback, the building works, and the services are ignored as chargeable consideration for the main transfer and any surplus land transfer. LBTT on those transfers would therefore generally focus on the cash premium or any rent paid by the developer. For the leaseback, the main transfer, the surplus land transfer, and the money paid for works or services are ignored, so there will generally be no chargeable consideration for the leaseback itself.
Why this can be difficult in practice
The source rule is short, but applying it can be fact-sensitive.
One difficulty is identifying whether the body transferring the land is definitely a qualifying body under the statutory definitions. That may be straightforward for some public authorities, but less obvious in more complex organisational structures.
Another issue is whether the leaseback is of “the whole, or substantially the whole” of the land. The source does not define that phrase. In practice, you need to look carefully at what land is transferred out and what land is leased back. Small retained or excluded areas may be acceptable, but once the difference becomes more significant the point may become debatable.
It can also be unclear whether the leaseback is truly given as consideration for the main transfer, especially where the documents are commercially complex and involve multiple agreements, development obligations, service packages, funding mechanics, and phased land interests.
The treatment of surplus land can add further complexity. The source says there is no need for the main transfer and the transfer of surplus land to be separate transactions, and one lease can perform both functions for different parts of the land. That means the legal analysis may depend on splitting out what each part of the land is doing within the overall arrangement.
Finally, there is a practical trap around notifiability. A reader might assume that if the chargeable consideration is largely ignored, there is nothing to report. The source expressly warns against that conclusion. The statutory exclusions affect the calculation of chargeable consideration for the transactions concerned, but not the separate question of whether the transaction must be notified.
Key takeaways
- This rule applies only to specific arrangements involving a qualifying public or educational body transferring land to a non-qualifying body with a leaseback and works or services package.
- If the conditions are met, the leaseback, building works, and services are ignored as chargeable consideration for the main transfer and any surplus land transfer.
- Do not confuse chargeable consideration with notifiability: the special rule does not govern whether the transaction must be notified.
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Useful article? You may find it helpful to read the original guidance here: LBTT Guidance on Transactions Involving Public or Educational Bodies in Scotland
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