Revenue Scotland LBTT: Understanding LBTT Guidance for Bare Trusts in Scotland

LBTT Guidance on Bare Trusts

This page provides guidance on the application of Land and Buildings Transaction Tax (LBTT) concerning bare trusts. It explains the principles and concepts related to the taxation of bare trusts under Scottish law.

• Definition and characteristics of bare trusts.
• How LBTT is applied to transactions involving bare trusts.
• Legal responsibilities of trustees and beneficiaries.
• Exemptions and reliefs available for bare trusts.
• Relevant legislation and guidance documents.

Understanding Bare Trusts and Land and Buildings Transaction Tax (LBTT)

In the world of property transactions, understanding the different types of trusts and their tax implications is essential. One such trust is the bare trust, which has specific implications for the Land and Buildings Transaction Tax (LBTT) in Scotland. This article aims to demystify bare trusts and explain how they relate to LBTT.

What is a Bare Trust?

A bare trust is a simple form of trust where the trustee holds property on behalf of the beneficiary. The trustee has no discretion over the trust property and must act according to the instructions of the beneficiary. Essentially, the beneficiary has the right to both the income and the capital of the trust at any time.

For example, consider a parent who sets up a bare trust for their child. The parent (trustee) holds the property, but the child (beneficiary) can demand the property or its income whenever they wish. This straightforward structure makes bare trusts particularly popular for holding assets for minors until they reach adulthood.

LBTT and Its Relevance

The Land and Buildings Transaction Tax (LBTT) is a tax applied to land and property transactions in Scotland. It replaced the UK Stamp Duty Land Tax (SDLT) in Scotland from 1 April 2015. LBTT is payable on both residential and non-residential property transactions, with rates and thresholds varying based on the type and value of the property.

For more detailed information on LBTT, you can visit the Revenue Scotland LBTT page.

How Bare Trusts Affect LBTT

When it comes to LBTT, the tax implications for bare trusts are unique. Since the beneficiary of a bare trust is treated as the owner of the property for tax purposes, they are responsible for any LBTT due on property transactions. This means that if a property is transferred into a bare trust, the beneficiary is considered the purchaser and must pay any applicable LBTT.

For instance, if a property worth £300,000 is placed into a bare trust for a beneficiary, the LBTT liability falls on the beneficiary, not the trustee. The beneficiary must ensure that the appropriate LBTT is calculated and paid.

Calculating LBTT for Bare Trusts

Calculating LBTT for property transactions involving bare trusts follows the same process as any other property transaction. The tax is calculated based on the purchase price of the property, with different rates applied to different bands of the purchase price.

For residential properties, the current LBTT rates are as follows:

• Up to £145,000 – 0%
• £145,001 to £250,000 – 2%
• £250,001 to £325,000 – 5%
• £325,001 to £750,000 – 10%
• Over £750,000 – 12%

For non-residential properties, the rates are slightly different. You can find the latest rates and thresholds on the Revenue Scotland LBTT rates and bands page.

Exemptions and Reliefs

There are certain exemptions and reliefs available under LBTT that may apply to transactions involving bare trusts. For example, if a property is transferred between spouses or civil partners, it may be exempt from LBTT. Additionally, if a property is transferred as part of a divorce settlement, it may qualify for relief.

It’s important to consult with a tax advisor or legal professional to determine if any exemptions or reliefs apply to your specific situation. More information on exemptions and reliefs can be found on the Revenue Scotland guidance on bare trusts.

Filing and Paying LBTT

Once the LBTT liability has been calculated, it must be reported and paid to Revenue Scotland. This involves submitting an LBTT return, which can be done online through the Revenue Scotland portal. The return must be submitted, and any tax due must be paid within 30 days of the effective date of the transaction.

Failure to submit a return or pay the tax on time can result in penalties and interest charges, so it’s important to ensure compliance with all filing and payment deadlines. Detailed instructions on how to file and pay LBTT can be found on the Revenue Scotland website.

Conclusion

Bare trusts are a straightforward way to hold property on behalf of a beneficiary, but they come with specific tax implications under the Land and Buildings Transaction Tax. Understanding these implications is key to ensuring compliance and avoiding unexpected tax liabilities.

By recognising the role of the beneficiary in a bare trust and their responsibility for LBTT, individuals can make informed decisions about property transactions. Whether you’re setting up a bare trust or involved in a property transaction as a beneficiary, consulting with professionals and staying informed about tax obligations is essential.

For further guidance on bare trusts and LBTT, you can explore the comprehensive resources available on the Revenue Scotland website.

Useful article? You may find it helpful to read the original guidance here: Revenue Scotland LBTT: Understanding LBTT Guidance for Bare Trusts in Scotland

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