Guide on LBTT Tax Relief for Alternative Property Finance Arrangements

LBTT relief for alternative property finance arrangements

Schedule 7 to the Land and Buildings Transaction Tax (Scotland) Act 2013 can give relief where an alternative property finance structure would otherwise create more than one LBTT charge. The relief is meant to stop extra tax arising just because the funding is structured differently from a normal purchase with a standard mortgage, but it only applies if the arrangement fits one of the statutory models.

• Relief may apply where a financial institution buys the property and then leases it to the customer before transferring it at the end of the term.
• It can also apply where the financial institution and the customer buy the property together as owners in common.
• Another recognised model is where the financial institution buys the property and resells it to the customer, with finance provided by that institution and a mortgage granted over the property.
• You must look at the whole arrangement, including linked steps, side agreements and informal understandings, because “arrangements” is defined very widely.
• The relief does not cover every deal involving a lender or investor; the entity must meet the legal definition of a “financial institution” and the structure must match the legislation.
• In practice, the detailed conditions in the relevant part of schedule 7 must be checked carefully, because a transaction may seem similar to alternative finance but still fall outside the relief.

Scroll down for the full analysis.

LBTT relief for alternative property finance arrangements

This page explains a relief from Land and Buildings Transaction Tax (LBTT) for certain alternative property finance structures. The point of the relief is to prevent the same property financing arrangement being taxed more than once merely because it is structured in a different way from a conventional purchase funded by an ordinary mortgage.

What this rule is about

Some property finance arrangements involve a financial institution buying or holding the property as part of the financing structure, rather than simply lending money secured by a standard mortgage. Without a specific relief, that can create more than one land transaction for LBTT purposes even though, in economic terms, the arrangement is functioning as a way of financing one acquisition.

Schedule 7 to the Land and Buildings Transaction Tax (Scotland) Act 2013 provides relief in these cases. The relief is aimed at avoiding multiple LBTT charges where the structure falls within one of the recognised forms of alternative property finance.

What the official source says

The official guidance says that relief is available where one of three categories of alternative property finance arrangements is used:

• a financial institution buys the property, then leases or sub-leases it to the customer, and agrees to transfer the property to that customer at the end of the term;
• a financial institution and the customer buy the property together as owners in common; or
• a financial institution buys the property and resells it to the customer, with the customer borrowing some or all of the price from that institution and granting a mortgage over the property.

The source also defines some key terms for these reliefs:

• “Financial institution” takes its meaning from section 564B of the Income Tax Act 2007, with one part of that definition omitted.
• “Arrangements” is defined very widely. It includes agreements, understandings, schemes, transactions, or a series of transactions, whether legally enforceable or not.
• References to a person include that person’s personal representatives after their death.

What this means in practice

The practical effect is that you cannot look only at the final ownership position. You must look at the whole financing structure.

If a financial institution temporarily acquires the property, shares ownership with the customer, or buys and resells as part of the funding arrangement, there may be several separate land transactions on paper. Schedule 7 is designed to stop LBTT from being charged repeatedly just because the financing method uses those extra steps.

This matters particularly where the structure is intended to comply with alternative finance principles. In a standard mortgage, the lender does not usually buy the property. In alternative finance, the institution may need to do so. The relief recognises that difference.

However, the relief is not described in this overview as applying to every transaction involving a financial institution. The arrangement must fit within one of the statutory models in schedule 7.

How to analyse it

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

• Is this an alternative property finance structure, rather than an ordinary purchase with a standard loan?
• Does the arrangement fall within one of the three recognised categories described in schedule 7?
• Is there a “financial institution” within the statutory meaning?
• What are all the steps in the arrangement, including side agreements, understandings, or linked steps?
• Is the financial institution’s purchase, lease, co-ownership, or resale part of the financing mechanism rather than a separate commercial deal?
• Which transaction or transactions would otherwise give rise to LBTT if the relief did not apply?

The wide definition of “arrangements” is important. You should not confine the analysis to the formal contract for sale or lease. If the overall structure depends on a series of connected steps, those steps may all need to be considered together.

The separate pages referred to in the official guidance deal with the detailed rules for each type of arrangement. This overview tells you the broad categories only. In practice, the detailed conditions for the relevant category will matter.

Example

Illustration: a bank buys a property because the customer does not want a conventional interest-bearing mortgage. The bank then grants the customer a lease and agrees that, after the agreed term, it will transfer the property to the customer. On the face of it, there may be a purchase by the bank, a lease to the customer, and a later transfer to the customer. Schedule 7 exists to prevent that financing structure being taxed more than once simply because it uses those steps.

The exact relief available would depend on whether the arrangement satisfies the detailed statutory rules for that category.

Why this can be difficult in practice

The overview is short, but the underlying analysis can be fact-sensitive.

First, the relief depends on the structure fitting within one of the statutory models. A transaction may look commercially similar to alternative finance but still fail if the legal steps do not match the legislation.

Second, the definition of “arrangements” is deliberately broad. That means informal understandings and linked transactions may matter, even if they are not all contained in one document.

Third, whether an entity is a “financial institution” is a legal definition, not just a matter of ordinary language. It is not enough to assume that any funder or investor qualifies.

Finally, this page is only an overview. It identifies the three broad types of arrangement, but not the full conditions, limits, or transaction-by-transaction consequences. Those details need to be checked in the relevant part of schedule 7 and the more specific guidance pages.

Key takeaways

• Alternative property finance can create several land transactions within one financing structure, and schedule 7 is intended to prevent double or multiple LBTT charges.
• The relief applies only to recognised statutory structures, not to every transaction involving a financial institution.
• To analyse the relief properly, you must look at the whole arrangement, including connected steps and the statutory meaning of “financial institution”.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Guide on LBTT Tax Relief for Alternative Property Finance Arrangements

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