Guidance on Sub-Sale Development Relief for First Buyers in Land Transactions

LBTT sub-sale development relief for major commercial development

LBTT sub-sale development relief can reduce or remove tax for the first buyer in a narrow type of pre-completion sub-sale, where the deal is linked to significant commercial development of the land within five years. It is not a general relief for all sub-sales, and it only applies if the legal, timing and development conditions are all met.

• The relief is only available to the first buyer under the original contract, not to later buyers in a chain.
• There must be a qualifying sub-sale, meaning the second buyer becomes entitled to call for a conveyance of all or part of the land, and the first buyer had that right immediately before the sub-sale.
• The original contract and the sub-sale must be substantially performed or completed at the same time and in connection with each other.
• The planned works must be significant commercial development, judged by the nature, extent and value of the land; minor works or simple refurbishment will not usually qualify.
• If the whole property is sub-sold, full relief may be available; if only part is sub-sold, relief may be partial and the price must be fairly apportioned.
• The first buyer must claim the relief in the LBTT return and have evidence that development is expected; if significant development is not completed within five years, the relief may be withdrawn and a further return may be needed within 30 days.

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LBTT sub-sale development relief: when the first buyer can reduce tax because major development is expected

This relief applies in a narrow type of LBTT sub-sale arrangement. It can reduce or remove LBTT for the first buyer where land is bought and then sub-sold before completion, and the arrangement is tied to significant commercial development of the land within five years. The rules are technical. The key questions are whether there is a qualifying sub-sale, whether the development is genuinely significant, and whether the timing conditions are met.

What this rule is about

Normally, pre-completion transactions such as sub-sales can trigger LBTT consequences before the original purchase completes. In a simple chain, A agrees to sell land to B, and before completion B agrees to sell it on to C. The legislation can treat C becoming entitled to call for a conveyance as substantial performance of the A-to-B contract, which can create a tax point for B.

Schedule 10A to the Land and Buildings Transaction Tax (Scotland) Act 2013 creates a special relief for some of these cases. Its purpose is to relieve the first buyer, but only where the sub-sale is connected with significant development of the land for commercial purposes.

This is not a general relief for all sub-sales. It is targeted, and it is only available to the first buyer in the chain.

What the official source says

Revenue Scotland’s guidance says the relief is available only to the first buyer under the first contract. It is not available to a second or later buyer in a chain of sub-sale arrangements.

For the relief to apply, there must be a qualifying sub-sale. In broad terms, that means:

• the first buyer contracts to sell all or part of the land from the first contract to a second buyer,
• the second buyer becomes entitled to call for a conveyance of all or part of that land, and
• immediately before entering into the sub-sale, the first buyer was entitled under the first contract to call for a conveyance of that land.

The source also sets out further qualifying conditions:

• the substantial performance or completion of the first contract must take place at the same time as, and in connection with, the substantial performance or completion of the qualifying sub-sale, and
• significant development for commercial purposes of the relevant land must be completed within five years from the date the first buyer entered into the qualifying sub-sale.

The relief does not apply if there is also a claim to alternative property finance relief.

The guidance explains that paragraph 16 of schedule 10A effectively disapplies the usual substantial performance rule in section 14(1)(c) where schedule 10A relief would otherwise be available. In practical terms, that is the mechanism that prevents the first buyer from being taxed in the usual way on entry into the qualifying sub-sale.

The guidance also defines key terms:

• development includes the construction of educational, sports and leisure, residential, retail, office or industrial buildings, and redevelopment of such buildings where the scale and cost are comparable to new construction,
• development does not include agricultural buildings, mining or engineering works other than wind farms, or plant and machinery,
• significant development must be judged by reference to the nature, extent and market value of the land, and
• the relief is not intended for simple refurbishment of an existing building or minor works relative to the land involved.

What this means in practice

The relief is aimed at development-led land deals, not ordinary flipping of contracts.

If the whole of the first contract is sub-sold under a qualifying arrangement, the first buyer can obtain full relief on the first land transaction. If only part of the first contract is sub-sold, only partial relief is available.

Where the relief is partial, the legislation requires an apportionment:

• for the first land transaction, the chargeable consideration is reduced by the amount that is just and reasonable to attribute to the part that is also the subject of the qualifying sub-sale,
• for the qualifying sub-sale, the chargeable consideration includes both any consideration under the first transaction that is provided directly or indirectly by the second buyer or a connected person, and the consideration given for the sub-sale itself.

This matters because in sub-sale structures the second buyer may pay money in more than one direction. For example, the second buyer may pay the first seller some or all of the original purchase price, and may also pay the first buyer a premium for stepping into the deal. The rules are designed to capture the real consideration flowing through the arrangement.

The first buyer must claim the relief in the original LBTT return or by amending the return within the amendment period. At the time of the claim, evidence must be available showing that significant development will take place. Revenue Scotland gives examples such as plans, funding arrangements, building contracts and planning applications.

The relief is not permanent if the expected development does not happen. If no significant development is completed within five years, the relief is fully withdrawn. If only some development happens, but not the proposed significant development, the relief may be partially withdrawn on a just and reasonable basis.

Where relief is withdrawn in full or part, the first buyer must file a further LBTT return within 30 days after the end of the five-year period and pay any further tax due.

How to analyse it

A sensible way to analyse the relief is to work through the following points in order.

• Who is claiming? The relief is restricted to the first buyer under the first contract.
• Is there truly a first contract? The guidance notes that the first contract does not include a contract that is itself a sub-sale or assignation of rights under another contract.
• Is there a qualifying sub-sale? Check whether the second buyer becomes entitled to call for a conveyance of all or part of the land, and whether the first buyer had that entitlement immediately before entering into the sub-sale.
• Does the timing condition work? The substantial performance or completion of the first contract must occur at the same time as, and in connection with, the substantial performance or completion of the qualifying sub-sale.
• What exactly is the subject-matter? This is the chargeable interest that the second buyer is entitled to call for. If only part is sub-sold, identify that part clearly.
• Is the expected development commercial and significant? The test is not just whether some works are planned. The development must be significant in light of the land’s nature, extent and market value.
• Will the development be completed within five years? The guidance links the five-year period to the date the first buyer entered into the qualifying sub-sale, but also notes that the contract may only become a qualifying sub-sale at the point the timing condition is met. That timing point needs careful attention.
• Is another relief being claimed that blocks this one? The guidance specifically excludes cases where alternative property finance relief is also claimed.
• Is there enough evidence at the claim stage? The first buyer should be able to show more than a vague intention to develop.
• If only partial development happens, what is the just and reasonable apportionment? This requires evidence of what was proposed and what was actually completed.

Example

Illustration only.

A developer agrees to buy a site from a landowner. Before completion, the developer enters into a sub-sale under which an end purchaser becomes entitled to call for a conveyance of the site. The arrangement is part of a plan to build a substantial office scheme, with funding terms, plans and building documentation already in place. The first contract and the sub-sale complete in connection with each other.

If the sub-sale is a qualifying sub-sale and the office development is significant in relation to the site and is completed within five years, the first buyer may claim sub-sale development relief. If the whole site is sub-sold, the relief may be full. If only part of the site is sub-sold, the relief may be partial and the consideration will need to be apportioned.

If, however, the project later reduces to minor refurbishment of an existing building and that is not significant compared with the land and its value, the relief may be withdrawn, wholly or partly, at the end of the five-year period.

Why this can be difficult in practice

The hardest issue is often whether the planned works amount to significant development. The guidance gives broad categories of qualifying development and says minor works or ordinary refurbishment are not enough, but it does not set a fixed monetary or physical threshold. The judgment depends on the facts of the site, the scale of the works and the value of the land.

Timing can also be awkward. The guidance recognises a difference between the date the first buyer enters into the sub-sale and the point at which the arrangement becomes a qualifying sub-sale because the timing condition is met. It says the five-year relevant period can begin from the date of substantial performance or completion of both contracts, rather than the date the contract was first entered into, if the contract only becomes a qualifying sub-sale later. That makes careful chronology important.

Partial relief and partial withdrawal both depend on what is just and reasonable. That is a familiar tax standard, but it is fact-sensitive. The parties need clear evidence showing what part of the original land transaction was sub-sold, what consideration relates to that part, what development was proposed, and what actually happened within the five-year period.

Another trap is assuming the relief follows the land through a chain. It does not. Revenue Scotland expressly says it is restricted to the first buyer only.

Key takeaways

• This relief is only for the first buyer in a qualifying sub-sale arrangement linked to significant commercial development.
• It is not enough that there is a sub-sale; the timing rules, entitlement rules and development condition must all be satisfied.
• If the planned significant development is not completed within five years, the relief can be withdrawn and a further LBTT return may be required within 30 days after that period ends.

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Useful article? You may find it helpful to read the original guidance here: Guidance on Sub-Sale Development Relief for First Buyers in Land Transactions

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