Guidance on Deferring LBTT Payment for Contingent or Uncertain Consideration

LBTT deferral for contingent or uncertain purchase price

A buyer may ask Revenue Scotland to defer part of their LBTT where part of the purchase price is genuinely contingent or uncertain at the effective date and may only become payable more than 6 months later. This changes when part of the tax is paid, not how the total LBTT is calculated, and the buyer must still file the initial return and later submit a further return when the amount becomes certain.

• Deferral is only available for consideration that is genuinely contingent or uncertain, is not rent, and is not already ascertainable.
• The contingent or uncertain amount must become payable, or potentially payable, more than 6 months after the effective date.
• LBTT must be calculated on the total chargeable consideration from the start, including the contingent amount, and then the total tax is apportioned between the amount paid now and the amount deferred.
• The buyer must apply using Revenue Scotland’s deferral form and provide full transaction details, calculations, and an explanation of the future event that will make the amount certain.
• If deferral is accepted, the initial LBTT return must still show the full consideration, and a further return with payment of the deferred tax is due within 30 days after the relevant event.
• Revenue Scotland may refuse the application if information is missing, the timing rules are not met, the amount is ascertainable, or the arrangement appears to involve artificial tax avoidance.

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LBTT deferral where part of the price is contingent or uncertain

This page explains when a buyer can ask Revenue Scotland to defer paying part of Land and Buildings Transaction Tax (LBTT) because some of the purchase price is not yet fixed or depends on a future event. The point matters because LBTT is normally calculated by reference to the full chargeable consideration, but in some cases part of the tax can be paid later if the statutory conditions are met.

What this rule is about

Some land transactions include deferred or variable consideration. A common example is an overage clause, where the buyer pays more later if planning permission is granted or some other event happens.

The legal problem is that LBTT works by reference to chargeable consideration for the transaction, including amounts that are contingent or uncertain. But if part of the consideration may not become payable until much later, the legislation allows the buyer to apply to defer payment of the LBTT attributable to that part.

This is not a general right to postpone tax. It is a specific mechanism for cases where:

• the relevant consideration is contingent or uncertain at the effective date, and
• it becomes payable, or may become payable, more than 6 months after the effective date.

What the official source says

Revenue Scotland says a buyer may apply to defer all or part of the LBTT payable on a land transaction if the amount of tax depends on chargeable consideration that is contingent or uncertain at the effective date and that amount becomes payable, or may become payable, more than 6 months later.

The application must be made using Revenue Scotland’s deferral application form. The guidance refers to section 41 of the Land and Buildings Transaction Tax (Scotland) Act 2013 and the Land and Buildings Transaction Tax (Administration) (Scotland) Regulations 2014.

A deferral is not available:

• for rent,
• if the contingent or uncertain amount is payable within 6 months of the effective date, or
• if the consideration is ascertainable.

The application must include detailed information about the transaction, including:

• the transaction reference number, if a return has already been submitted,
• the effective date,
• the buyer’s identity and correspondence address,
• the location of the land,
• the certain consideration,
• the amount for which deferral is sought,
• a reasoned view on when the amount will stop being contingent or will become ascertainable,
• the total chargeable consideration,
• a calculation of LBTT on that total,
• a calculation of the amount sought to be deferred,
• the nature of the contingency or uncertainty, and
• as much detail as possible about expected payment dates.

Revenue Scotland may ask for more information. If that information is not provided, the application may be refused.

If the application is accepted, Revenue Scotland will issue a notice stating the amount of tax payable under the initial return and identifying the relevant event or events. In this context, a relevant event is one that causes all or part of the contingent consideration to stop being contingent or to become certain.

If the application is refused, Revenue Scotland must notify the buyer of the grounds and the amount of tax due as a result. The refusal notice is treated as a tax assessment. Interest runs from the date of that notice until payment is made.

The guidance also says Revenue Scotland may refuse a deferral application if the transaction involves artificial tax avoidance arrangements within Part 5 of the Revenue Scotland and Tax Powers Act 2014.

What this means in practice

The important practical point is that deferral affects when part of the tax is paid, not how the total LBTT liability is worked out.

Revenue Scotland’s guidance says you must first calculate LBTT using the total chargeable consideration, including both the certain and contingent elements. You then apportion that total tax liability between:

• the part payable now, and
• the part that may be deferred.

That means you do not calculate LBTT separately on the fixed amount and again separately on the contingent amount. The guidance expressly warns that doing so would understate the tax and could lead to penalties.

The buyer must still file an LBTT return even where a deferral application is made or accepted. The return must show the full total chargeable consideration, including the contingent amount. But the amount actually paid with the initial return should be adjusted so that it reflects only the tax payable at that stage, with the deferred amount left out.

When the contingent amount later becomes certain, or can be ascertained, a further return is required. That further return must be submitted within 30 days of the relevant event, and the deferred tax must be paid at the same time.

Revenue Scotland’s current guidance also explains that its online system has some issues, so manual adjustments may be needed within the return to make the figures work correctly. The guidance sets out the fields that must be completed in a particular way.

How to analyse it

A sensible way to analyse a case is to ask these questions in order.

• Is part of the consideration genuinely contingent or uncertain at the effective date?
• Is that amount payable, or potentially payable, more than 6 months after the effective date?
• Is the amount really unascertainable, rather than simply deferred but already fixed?
• Is the amount excluded from deferral because it is rent?
• Has the buyer calculated LBTT on the total chargeable consideration rather than splitting the tax calculation into separate standalone amounts?
• Does the application explain clearly what future event will make the amount certain, and when that is expected to happen?
• Has the buyer included enough detail for Revenue Scotland to decide the application?
• Once accepted, has the buyer included the deferral reference on the return and amended the filed return if necessary?
• When the relevant event occurs, has the buyer filed the further return within 30 days and paid the deferred amount?

In practice, one of the main issues is distinguishing between an amount that is uncertain and an amount that is already ascertainable. The guidance makes clear that ascertainable consideration does not qualify for deferral, even if it is paid later.

Another important point is that the initial return still needs to include the full total consideration. The deferral changes the timing of payment, not the need to disclose the overall deal structure.

Example

This is an illustration based on Revenue Scotland’s own example.

A developer buys land for £350,000. The contract also says the buyer must pay an extra £50,000 for each block of 50 houses for which planning permission is granted within 2 years. The buyer expects planning permission for 200 houses, so the contingent consideration is £200,000.

The total consideration is therefore treated as £550,000 for LBTT purposes at the outset: £350,000 certain plus £200,000 contingent.

Using the rates and bands in force at the effective date in Revenue Scotland’s example, the LBTT on the total £550,000 is £16,000.

Revenue Scotland’s approach is then to apportion that £16,000 between the fixed and contingent parts:

• tax attributable to the certain consideration: (350,000 / 550,000) × 16,000 = £10,182
• tax attributable to the contingent consideration: (200,000 / 550,000) × 16,000 = £5,818

On the initial return, the buyer shows total consideration of £550,000, but pays only £10,182 if the deferral is accepted.

If planning permission is later granted for the full 200 houses, the contingent amount stops being contingent. The buyer must then file a further return within 30 days and pay the deferred £5,818.

Why this can be difficult in practice

The first difficulty is classification. Not every later payment is contingent or uncertain in the legal sense. If the amount is already fixed or can be worked out at the outset, Revenue Scotland says deferral is not available, even if payment is due later.

The second difficulty is timing. The rule only applies where the amount becomes payable, or may become payable, more than 6 months after the effective date. If that timing condition is not met, the application can be refused.

The third difficulty is the return mechanics. Revenue Scotland’s guidance says its system has known issues, and the buyer may need to make manual amendments so that the return shows the full consideration but only the non-deferred tax is paid initially. That creates scope for filing errors.

The fourth difficulty is the later compliance step. A buyer who obtains a deferral still needs to monitor the contract and the relevant event. Once the amount becomes certain or ascertainable, a further return is required within 30 days. Missing that point can lead to late filing and late payment consequences.

There can also be anti-avoidance sensitivity. Revenue Scotland says it may refuse deferral if the transaction involves artificial tax avoidance arrangements. That does not mean every overage arrangement is problematic, but it does mean the authority may look closely at whether the structure is genuine.

Key takeaways

• LBTT deferral is only available for contingent or uncertain consideration that becomes payable, or may become payable, more than 6 months after the effective date.
• The tax must still be calculated by reference to the total chargeable consideration, with the total liability then apportioned between the amount payable now and the amount deferred.
• The buyer must still file the initial return, include the full consideration, and then file a further return within 30 days when the contingent amount becomes certain or ascertainable.

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Useful article? You may find it helpful to read the original guidance here: Guidance on Deferring LBTT Payment for Contingent or Uncertain Consideration

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