Guidance on Recovering Withdrawn LBTT Reconstruction or Acquisition Relief

LBTT liability after reconstruction or acquisition relief is withdrawn

If LBTT reconstruction relief or acquisition relief is later withdrawn, the acquiring company is usually the first party liable for the extra tax. Revenue Scotland must serve a formal notice to recover it, and if the amount remains unpaid for six months after it becomes payable, recovery may extend to certain parent group companies and controlling directors. Any LBTT paid after withdrawal of relief is not tax-deductible.

• Revenue Scotland can recover the extra LBTT from the acquiring company only after the amount has been finally determined and a notice has been served.
• The notice must state the amount due, require payment within 30 days, and be served within three years of the tax being finally determined.
• The notice is treated like an assessment and also applies for interest, recovery action, and appeal purposes.
• If the tax is still unpaid six months after it became payable, Revenue Scotland may pursue companies above the acquiring company in the group and certain controlling directors.
• A person who pays may have a statutory right to recover the amount from the buyer or, in some cases, from the acquiring company.
• The payment cannot be deducted when calculating income, profits, or losses for other tax purposes.

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LBTT: who must pay tax when reconstruction or acquisition relief is later withdrawn

This page explains what happens after Land and Buildings Transaction Tax relief for a reconstruction or acquisition is withdrawn, in whole or in part. The main point is that once the extra LBTT has been worked out, Revenue Scotland can formally recover it from the acquiring company. If it remains unpaid, the legislation can also make other group companies and certain directors liable in defined circumstances.

What this rule is about

Reconstruction relief and acquisition relief can reduce or remove LBTT on certain group or corporate transactions. But those reliefs are not always final. If a later event means the relief is withdrawn, or only partly survives, LBTT becomes payable.

This part of the legislation is about recovery. It deals with who Revenue Scotland can pursue for the tax once the withdrawal has been established, how that recovery is triggered, and who may ultimately bear the cost as between the parties involved.

It is therefore not the rule that decides whether relief is lost. It is the rule that explains how the tax is collected after relief has been lost.

What the official source says

The official guidance says that once the LBTT due because of the withdrawal of reconstruction relief or acquisition relief has been determined, the acquiring company is responsible for paying it.

To recover that tax, Revenue Scotland must serve a notice on the acquiring company. The notice must:

• require payment within 30 days after the notice is served;
• be served within three years beginning with the date the tax was finally determined;
• state the amount payable; and
• be treated as if it were a Revenue Scotland assessment, with the tax treated as due from the person served with the notice.

The notice also has effect for recovery of the tax, any interest on the unpaid tax, and for appeal purposes.

If the person served with the notice pays the tax and interest, that person is entitled to recover that amount from the buyer.

The guidance also says that no deduction is allowed, for any tax purpose, in calculating income, profits or losses for the amount paid as LBTT following withdrawal of the relief.

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

• a company which, 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 is entitled to recover the amount paid from the acquiring company.

For these purposes, the guidance defines:

• relevant time as any time between the effective date of the transaction and the date of the change of control that triggered the charge;
• a company being above another in the group structure by reference to the 75% subsidiary test; and
• director and controlling director by reference to the statutory definitions in the Income Tax (Earnings and Pensions) Act 2003 and the Corporation Tax Act 2010.

What this means in practice

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

But the tax is not collected automatically just because relief has been lost. Revenue Scotland must serve a formal notice. That notice matters because it fixes the amount to be paid, starts the 30-day payment period, and is treated like an assessment for enforcement and appeal purposes.

The three-year time limit is also important. Revenue Scotland must serve the notice before the end of three years from the date the tax was finally determined. If you are checking whether a recovery action is in time, you need to identify when the tax became finally determined, not just when the original transaction took place.

If the acquiring company does not pay within six months after the tax became payable, the legislation allows Revenue Scotland to move beyond that company and pursue others. This is a secondary recovery mechanism. It can reach:

• parent or higher group companies that were above the acquiring company in the group structure during the relevant period; and
• controlling directors of the acquiring company, or of a company controlling it, during that period.

That means the financial risk may not stay confined to the company that originally claimed the relief. In a group reorganisation, the wider group and certain individuals may need to consider this exposure if a future change of control could trigger withdrawal.

The legislation also deals with who should ultimately bear the cost as between the parties. If the person served with the notice pays, that person can recover the amount from the buyer. If a different person pays under the extended recovery rules, that payer can recover the amount from the acquiring company.

The rule denying tax deductions means the amount paid cannot be used to reduce taxable income, profits or losses for other tax purposes. In practical terms, the LBTT cost remains a real cost and cannot be softened by claiming a deduction elsewhere in the tax system.

How to analyse it

When working through a case, it helps to ask the questions in this order.

• 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?
• Has Revenue Scotland served a notice on the acquiring company?
• Was that notice served within three years from the date the tax was finally determined?
• What amount does the notice require to be paid, and when does the 30-day payment period end?
• Has the tax remained unpaid for six months after it became payable?
• If so, which companies were above the acquiring company in the same group at any relevant time?
• Were there any controlling directors of the acquiring company, or of a company controlling it, during the relevant period?
• If someone other than the acquiring company pays, who has the statutory right to recover that amount from whom?
• Has anyone incorrectly assumed that the payment is deductible for tax purposes?

Two timing points are especially important. First, the relevant period for identifying other potentially liable persons runs from the effective date of the transaction to the date of the change of control that causes the charge. Second, the six-month period for secondary recovery only starts once the tax has become payable.

Example

This is an illustration only. Company A acquires land in a transaction that qualified for acquisition relief. Later, a change of control occurs and the relief is withdrawn, creating an LBTT charge. Revenue Scotland determines the amount due and serves a notice on Company A requiring payment within 30 days.

If Company A pays, that settles Revenue Scotland’s claim against it for the amount in the notice and any interest, but Company A may have a statutory right to recover that amount from the buyer.

If Company A does not pay, and six months pass after the tax became payable, Revenue Scotland may be able to recover the unpaid amount from a parent company that sat above Company A in the group during the relevant period, or from a controlling director within the statutory definition. If that parent company or director pays, that payer can recover the amount from Company A.

Why this can be difficult in practice

The main difficulties are usually about timing and group structure.

First, the legislation uses several different dates: the effective date of the transaction, the date of the change of control, the date the tax was finally determined, the date the notice was served, and the date the tax became payable. Those dates do different jobs. Confusing them can lead to mistakes about whether recovery is in time or whether secondary recovery is available.

Second, identifying which company was above the acquiring company in the group structure may require careful tracing through 75% subsidiary relationships over time. Group structures can change, and the legislation looks at whether the company was above the acquiring company at any relevant time.

Third, the concept of a controlling director depends on statutory definitions of director and control. That can be straightforward in some cases, but more difficult where control is exercised indirectly or through arrangements that are not obvious from the company register alone.

Finally, the guidance states who can recover from whom after payment, but in practice there may still be commercial disputes about who should bear the economic cost under transaction documents, indemnities, or group arrangements. Those private arrangements do not alter Revenue Scotland’s statutory recovery rights, but they may matter between the parties.

Key takeaways

• If reconstruction or acquisition relief is later withdrawn, the acquiring company is the primary person liable once the tax has been determined.
• Revenue Scotland must serve a 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 after it became payable, recovery can extend to certain parent group companies and controlling directors.

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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