Guidance on Recovering Withdrawn LBTT Reconstruction or Acquisition Relief

LBTT liability when reconstruction or acquisition relief is withdrawn

If LBTT reconstruction relief or acquisition relief is later withdrawn, the acquiring company is normally the first party liable for the extra tax. Revenue Scotland must issue a formal notice to recover it, and if the tax remains unpaid for six months, it may also pursue certain parent group companies or controlling directors, who may then seek repayment from the acquiring company.

• The acquiring company is primarily responsible for LBTT due after the relief is withdrawn or partly withdrawn.
• Revenue Scotland must serve a notice stating the amount due, requiring payment within 30 days, and it must do so within three years of the tax being finally determined.
• The notice is treated like a formal Revenue Scotland assessment, so normal rules on recovery, interest and appeals apply.
• If the tax is still unpaid six months after it becomes payable, Revenue Scotland may recover it from group companies above the acquiring company or from relevant controlling directors.
• Anyone other than the acquiring company who pays the tax can usually recover that amount from the acquiring company, but Revenue Scotland can still collect from the persons allowed by law.
• No tax deduction is allowed for LBTT paid following withdrawal of the relief when calculating income, profits or losses.

Scroll down for the full analysis.

LBTT: who must pay tax when reconstruction or acquisition relief is later withdrawn

This page explains what happens after reconstruction relief or acquisition relief for Land and Buildings Transaction Tax (LBTT) is withdrawn, or partly withdrawn, after a land transaction has already taken place. The main issue is not whether the relief is lost, but who Revenue Scotland can pursue for the tax, how that is done, and who may ultimately bear the cost.

What this rule is about

Reconstruction relief and acquisition relief can reduce or remove LBTT on certain group or corporate reorganisation transactions. But if later events trigger withdrawal of the relief, LBTT becomes payable.

The legislation then needs a mechanism to recover that tax. This source deals with that recovery process. It sets out:

• who is primarily liable once relief has been withdrawn or partly withdrawn,
• how Revenue Scotland must demand the tax,
• when other group companies or controlling directors can be pursued if the tax remains unpaid, and
• who has a right to recover the amount from someone else after paying it.

This matters because the company that originally benefited from the relief may not be the only party exposed. In some cases, liability can spread up the group or reach certain directors with control.

What the official source says

Once the amount of LBTT due because reconstruction relief or acquisition relief has been withdrawn has been determined, the acquiring company is responsible for paying that tax.

Revenue Scotland must serve a notice on the acquiring company to recover it. That notice:

• requires payment within 30 days after the notice is served,
• must be served within three years beginning with the date the tax was finally determined,
• must state the amount due, and
• is treated as if it were a Revenue Scotland assessment, including for recovery, interest and appeals.

If the person served with the notice pays the tax and interest, that person has a legal right to recover the amount paid from the buyer.

No deduction is allowed, for any tax purpose, in calculating income, profits or losses for the amount paid as LBTT recovered following withdrawal of the relief.

If the tax, or part of it, is still unpaid six months after it became payable, Revenue Scotland may recover the unpaid amount from other persons. Those persons are:

• a company that, at any relevant time, was in the same group as the acquiring company and was above it in the group structure, and
• any person who, at any relevant time, was a controlling director of the acquiring company or of a company that controlled the acquiring company.

If someone other than the acquiring company pays the tax and interest, that person can recover the amount paid from the acquiring company.

For these rules, a relevant time is any time between the effective date of the transaction and the date of the change of control that triggers the charge. The source also defines when one company is above another in the group structure, and adopts statutory definitions of director and controlling director.

What this means in practice

The starting point is simple: if relief is later withdrawn, the acquiring company is the first company Revenue Scotland looks to.

But the legislation goes further than that. If the acquiring company does not pay within six months after the tax became payable, Revenue Scotland may look elsewhere. That creates a secondary exposure for:

• parent or higher-tier group companies, and
• certain directors who had control.

This is important in corporate reorganisations because the company that acquired the land may later be sold, dissolved, stripped of assets, or become unable to pay. The recovery rules are designed to stop the tax becoming irrecoverable in those situations.

The notice served by Revenue Scotland is not just an informal demand. The source says it is treated as if it were a Revenue Scotland assessment. That means it has formal legal effect for collection, interest and appeal rights.

The source also recognises that the person who pays may not be the person who should ultimately bear the cost. So it creates statutory reimbursement rights:

• if the person served with the notice pays, that person may recover the amount from the buyer,
• if another person such as a parent company or controlling director pays later, that person may recover the amount from the acquiring company.

Those reimbursement rights matter commercially, but they do not prevent Revenue Scotland from collecting from the persons the legislation allows it to pursue.

How to analyse it

A sensible way to approach these cases is to work through the following questions.

• Has reconstruction relief or acquisition relief actually been withdrawn, or only partly withdrawn?
• Has the amount of LBTT due as a result been finally determined?
• Who is the acquiring company for this purpose?
• Has Revenue Scotland served a valid notice on the acquiring company?
• Was that notice served within three years from the date the tax was finally determined?
• When did the tax become payable under the notice?
• Has any amount remained unpaid for six months after that date?
• Which companies were in the same group and above the acquiring company during the relevant period?
• Who, during the relevant period, was a controlling director of the acquiring company or of a company controlling it?
• If someone else pays, against whom does that person have a statutory right of recovery?

In group cases, the phrase above it in the group structure is important. The source says one company is above another if the lower company, or another company above it, is a 75% subsidiary of the higher company. So this is not about informal influence or economic connection. It depends on the statutory group structure.

For directors, not every director is exposed. The rule applies to a controlling director, using the statutory control tests in the Corporation Tax Act 2010. That means the analysis turns on legal control as defined by tax legislation, not just job title or practical involvement.

Example

A company acquires Scottish land as part of a group reorganisation and claims acquisition relief. Later, a change of control occurs that causes the relief to be withdrawn. The additional LBTT is then determined.

Revenue Scotland serves notice on the acquiring company requiring payment within 30 days. If the acquiring company does not pay, and six months pass after the tax became payable, Revenue Scotland may seek to recover the unpaid amount from a parent company that was above the acquiring company in the group during the relevant period. If the parent company pays, it can then recover that amount from the acquiring company.

If, instead, a person who was a controlling director during the relevant period is pursued and pays, that person also has a statutory right to recover the amount from the acquiring company.

Why this can be difficult in practice

These rules can be difficult because they sit at the intersection of LBTT relief withdrawal rules, group structure analysis and tax control definitions.

Some of the main practical difficulties are:

• identifying the exact event that caused the relief to be withdrawn, especially where ownership changes happen in stages,
• working out when the tax was finally determined, because that date affects the three-year deadline for serving the notice,
• establishing the relevant group structure over the whole period from the effective date of the transaction to the triggering change of control,
• deciding whether a person was a controlling director under the statutory control rules, which can be technical, and
• distinguishing between Revenue Scotland’s right to recover the tax and the separate private right of one payer to recover the amount from another person.

There is also a practical difference between who Revenue Scotland can collect from and who should ultimately carry the economic burden. The legislation gives recovery rights between parties, but those rights may still need to be enforced separately if payment is disputed.

Another point that is easy to miss is that the source expressly denies a tax deduction for the amount paid. So even if a company or director ends up paying LBTT because relief was withdrawn, the payment is not allowable in calculating income, profits or losses for tax purposes.

Key takeaways

• When reconstruction or acquisition relief is withdrawn, the acquiring company is primarily liable for the resulting LBTT.
• Revenue Scotland must recover that tax by serving a formal notice, and that notice must be served within three years from the date the tax was finally determined.
• If the tax remains unpaid for six months, Revenue Scotland may also recover it from certain higher group companies and controlling directors, who then have a statutory right to recover the amount from the acquiring company.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Guidance on Recovering Withdrawn LBTT Reconstruction or Acquisition Relief

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