Revenue Scotland LBTT: Guidance on LBTT Rules for Connected Persons in Scotland
Connected Persons under LBTT(S)A 2013
This section of the Revenue Scotland website provides guidance on the application of the Land and Buildings Transaction Tax (Scotland) Act 2013, specifically focusing on connected persons as defined in section 58 of the Act. The principles and concepts include:
- Application of section 1122 of the Corporation Tax Act 2010 for LBTT purposes.
- Understanding the definition and implications of connected persons in tax transactions.
- Guidance on how these rules affect particular transactions involving bodies corporate.
Read the original guidance here:
Revenue Scotland LBTT: Guidance on LBTT Rules for Connected Persons in Scotland
Understanding Land and Buildings Transaction Tax (LBTT) and Connected Persons in Scotland
The Land and Buildings Transaction Tax (LBTT) is a tax applied to residential and commercial land and buildings transactions in Scotland. It replaced the UK Stamp Duty Land Tax (SDLT) in Scotland from 1 April 2015. This article explores the concept of LBTT, focusing on the rules regarding connected persons, as outlined in the Land and Buildings Transaction Tax (Scotland) Act 2013 (LBTT(S)A 2013).
What is LBTT?
LBTT is a tax payable on the acquisition of land or buildings in Scotland. It applies to both residential and non-residential transactions. The tax is progressive, meaning that the rate increases with the value of the property. For residential properties, different rates apply depending on the price bands. For example, as of the latest rates, there is no tax on the first £145,000 of a residential property, with increasing rates applied to higher bands.
For more detailed information on LBTT rates and bands, you can visit the Revenue Scotland LBTT page.
Connected Persons and LBTT
The concept of connected persons is significant in the context of LBTT because transactions involving connected persons can be subject to different rules. Section 58 of the LBTT(S)A 2013 states that section 1122 of the Corporation Tax Act 2010 (CTA10) applies for the purposes of determining connected persons.
Who are Connected Persons?
Connected persons can include family members, business partners, or companies with shared control. For example, if a person buys a property from their sibling, this transaction may be considered as involving connected persons. Similarly, if a company director purchases property from their company, this could also be a connected transaction.
Why Does It Matter?
Transactions between connected persons are scrutinised more closely to prevent tax avoidance. For instance, if a property is sold at a lower price than its market value between connected persons, the tax calculation might be based on the market value rather than the sale price. This ensures that the LBTT is calculated fairly and that the tax base is not eroded through undervalued transactions.
Examples of Connected Persons
Understanding who qualifies as a connected person can be complex. Here are a few examples to clarify:
- Family Members: This includes spouses, civil partners, siblings, ancestors (such as parents and grandparents), and descendants (such as children and grandchildren).
- Business Relationships: Partners in a partnership are considered connected. Additionally, if a person has control over a company, they are connected to that company.
- Corporate Connections: Companies can be connected if they are under the control of the same person or group of persons.
For more detailed guidance on connected persons, refer to the Revenue Scotland guidance on connected persons.
Calculating LBTT for Connected Persons
When calculating LBTT for transactions involving connected persons, the market value rule often applies. This means that the tax is calculated based on the property’s market value rather than the transaction price. This rule is in place to prevent underreporting of transaction values between connected persons.
Example Calculation
Consider a scenario where a person sells a residential property to their sibling for £150,000, but the market value of the property is £200,000. In this case, the LBTT would be calculated based on the £200,000 market value, not the £150,000 sale price.
Compliance and Reporting
Both buyers and sellers in a transaction involving connected persons must ensure compliance with LBTT regulations. Accurate reporting of the transaction value and the relationship between the parties is essential. Failure to comply can result in penalties and interest charges.
Filing an LBTT Return
For any land or property transaction, an LBTT return must be filed with Revenue Scotland. This includes transactions involving connected persons. The return must include details of the transaction, the parties involved, and the calculated LBTT. It is crucial to ensure that the information provided is accurate and complete.
Conclusion
Understanding the implications of connected persons in LBTT transactions is vital for anyone involved in buying or selling property in Scotland. By recognising who qualifies as a connected person and how this affects tax calculations, individuals and businesses can ensure compliance and avoid potential penalties.
For further information and guidance on LBTT and connected persons, visit the Revenue Scotland website.
Useful article? You may find it helpful to read the original guidance here: Revenue Scotland LBTT: Guidance on LBTT Rules for Connected Persons in Scotland
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