Guidance on LBTT Relief for Property Transactions with Financial Institutions

LBTT relief for alternative property finance arrangements

This relief can apply when a financial institution buys a property first and then sells the same interest on to the intended buyer, who borrows from that institution and gives it a standard security. If the legal conditions are met, the rules are designed to prevent two LBTT charges arising where the arrangement is being used instead of a normal mortgage-funded purchase.

• The arrangement must follow a specific structure: the financial institution buys a major interest in the land, then sells the whole of that same interest to the buyer.
• The buyer must fund some or all of the purchase price by borrowing from that institution and must grant the institution a standard security over the property.
• The first transaction is usually chargeable to LBTT, although relief may be available in limited cases depending on who sold the property to the institution.
• Relief on the second transaction depends on the first transaction having been dealt with properly, including payment of any LBTT due.
• The aim is that, where all statutory conditions are satisfied, the overall tax result broadly matches a normal single purchase financed by a conventional mortgage.
• Care is needed because the legislation is technical and relief is not automatic if the institution does not acquire and pass on the whole of the same major interest.

Scroll down for the full analysis.

LBTT relief where a financial institution buys a property and then re-sells it to the buyer

This page explains a specific LBTT relief for alternative property finance arrangements. It applies where a financial institution first buys the property, then sells it on to the person who wants the property, and that person finances the purchase by borrowing from the institution and granting a standard security over the property. The relief is designed to prevent these arrangements suffering more LBTT than an ordinary purchase funded by a conventional mortgage.

What this rule is about

Under these arrangements, there are two separate land transactions instead of one.

First, the financial institution acquires the property. Second, the institution sells that same interest to the person who will occupy or own it. The person also gives the institution a standard security over the property as part of the financing.

Without special relief, two taxable land transactions could mean two LBTT charges. Schedule 7 to the Land and Buildings Transaction Tax (Scotland) Act 2013 provides relief so that, if the statutory conditions are met, the overall LBTT result broadly matches the tax position for a normal purchase funded by a mortgage.

What the official source says

The Revenue Scotland guidance refers to schedule 7, paragraphs 13 to 15 of the LBTT(S)A 2013.

The required arrangement is:

• the financial institution buys a major interest in land; this is the first transaction,
• the institution then sells the whole of that major interest to the person; this is the second transaction, and
• the person grants the institution a standard security over that interest.

The first transaction will generally be chargeable to LBTT. However, relief may be available for that first transaction if the seller is either:

• the same person who enters into the arrangements with the financial institution, or
• another financial institution that had itself acquired the interest under the same type of arrangements with that person.

The second transaction may also qualify for relief, but only if the requirements relating to the first transaction have been complied with. The guidance expressly says this includes payment of any LBTT due on the first transaction.

The overall effect, where the arrangements are completed in the required way and the other conditions are met, is that only one LBTT charge should arise. In some cases, relief may also be available on the first transaction.

What this means in practice

The key practical point is that this relief is not automatic just because a bank or other financial institution sits in the middle of the purchase. The structure must match the statutory model.

You should expect Revenue Scotland to look at whether:

• the institution really did acquire a major interest in land,
• the institution then sold the whole of that same interest to the person,
• the person borrowed some or all of the price from that institution, and
• a standard security was granted over the property.

If the conditions are met, the legislation is intended to stop the intermediate acquisition by the financial institution creating an extra LBTT cost compared with ordinary mortgage finance.

The guidance also shows that compliance on the first transaction matters for the second. If LBTT is due on the first transaction, that tax must be dealt with properly. A failure on the first transaction may prevent relief on the second transaction.

How to analyse it

A sensible way to analyse these arrangements is to work through the transactions in order.

• Identify the first transaction. Did the financial institution acquire a major interest in land?
• Identify the seller on that first transaction. Was it the person entering into the finance arrangements, or another financial institution that had acquired the property under the same kind of arrangements?
• Identify the second transaction. Did the institution sell the whole of the major interest it acquired to the person?
• Check the financing step. Did the person borrow some or all of the purchase price from that institution?
• Check the security step. Was a standard security granted to the institution over that interest?
• Check compliance on the first transaction. Was any LBTT due there paid, and were the relevant requirements met?
• Then consider whether relief is available on the first transaction, the second transaction, or both under the statutory conditions.

The phrase “whole of the major interest obtained” matters. If the institution does not pass on the whole interest it acquired, the arrangement may fall outside the model described in the guidance.

Example

This is an illustration of how the relief is meant to work.

A financial institution buys a property from a seller. It then sells that same property to the intended buyer. The buyer funds the purchase by borrowing from the institution and grants the institution a standard security over the property. Because there are two land transactions, there would otherwise be scope for LBTT to arise twice. Schedule 7 relief is designed so that, if the statutory conditions are satisfied and the first transaction has been dealt with correctly, the overall LBTT outcome is aligned with a normal single purchase financed by a mortgage.

Why this can be difficult in practice

The guidance is short, but the underlying legislation is technical.

Several points can be fact-sensitive:

• whether the institution acquired and then sold the same major interest,
• whether the second sale was of the whole of that interest,
• whether the financing and standard security are part of the required arrangement, and
• whether the first transaction has been fully complied with, including payment of any LBTT due.

Another practical difficulty is that the guidance says the first transaction is “generally” chargeable, but relief may be claimed in specified cases. That means you should not assume the first transaction is always relieved, or that relief on the second transaction can be considered in isolation.

The source also does not set out every statutory definition or edge case. For example, whether a party counts as a financial institution, or whether a particular restructuring still fits the paragraph 13 to 15 model, will depend on the legislation and the precise facts.

Key takeaways

• This relief addresses alternative property finance arrangements involving two land transactions instead of a conventional mortgage-funded purchase.
• If the statutory conditions are met, the aim is that the arrangement bears only one LBTT charge overall, rather than being taxed twice.
• Relief on the second transaction depends on the first transaction having been handled correctly, including payment of any LBTT due on that first transaction.

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 Relief for Property Transactions with Financial Institutions

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