Three separate elements must be taken into account when assessing whether a dwelling should be counted when determining what counts as a dwelling owned by a buyer for the purposes of the LBTT(A)(S)A 2016. These are i) What is it?; ii) Where is it? and iii) What is it worth?
i) The definition of a dwelling
The Multiple Dwellings Relief definition of "dwelling" contained in Part 6 of schedule 5 to the LBTT(S)A 2013 applies for the purposes of determining what counts as a "dwelling" for the purposes of the LBTT(A)(S)A 2016.
A building or part of a building counts as a dwelling if it (a) is used or is suitable for use as a single dwelling or (b) it is in the process of being constructed or adapted for such use.
Such a definition of "dwelling" will cover the standard purchase of a house or flat in Scotland.
Where a large house is split into three separate flats, that house will comprise three dwellings.
Land that is, or is to be, occupied or enjoyed with a dwelling as a garden or grounds (including any building or structure on such land) is taken, together with land that subsists or is to subsist, for the benefit of a dwelling, to be part of that dwelling.
A cleared site with no buildings would not be counted as a dwelling even if it had planning permission for the construction of residential property. However a dwelling on a site would be counted as a dwelling even if that dwelling was to be refurbished or demolished.
Further details of the rules around determining what counts as a dwelling for the purposes of the LBTT(A)(S)A 2016 can be found in Part 6 of schedule 5 of the LBTT(S)A 2013 and in part LBTT4010 of the guidance.
Most property transactions that will be liable for the ADS will be "residential property transactions".
Residential property transactions are transactions where the main subject-matter of the transaction consists entirely of an interest in land that is residential property or, where the transaction is one of a number of linked transactions, the main subject-matter of each transaction consists entirely of such an interest.
However, in some cases, a transaction will comprise a "non-residential property transaction".
Non-residential property transactions are where either:
1) the main subject-matter of the transaction consists of or includes an interest in land that is not a residential property or b) where the transaction is one of a number of linked transactions, the main subject-matter of any transaction consists of or includes such an interest) or
2) where six or more separate dwellings are the subject of a single transaction involving the transfer of a major interest in them.
Full relief is available from the ADS for any transaction in which a buyer (whether an individual or a non-natural person), purchases six or more residential properties in one transaction. Further details on the available ADS reliefs can be found in part LBTT10040 of the guidance.
ii) Where is the dwelling?
Dwellings owned outside of Scotland, either in the rest of the UK or the rest of the world, (as well as dwellings owned within Scotland) will be counted when determining what counts as a dwelling owned by an individual (in addition to the dwelling being purchased in the new transaction).
All forms of ownership in the legal systems of the rest of the UK which are equivalent to ownership in Scotland are treated as ownership for the purposes of the LBTT(A)(S)A 2016.
For instance, a dwelling for which an individual holds a tenant's interest under certain types of lease in the rest of the UK would count towards dwellings owned by an individual for the purposes of the LBTT(A)(S)A 2016.
Additionally, the prevailing UK concepts regarding ownership apply across the foreign legal systems and must be read in accordance with the prevailing law and practice of the country in which the dwelling is situated when determining whether an individual owns a dwelling overseas.
Ownership of a dwelling on a "freehold" or "leasehold" (for certain types of lease) basis outside of the UK would therefore count towards dwellings owned by an individual.
Where an individual owns a main residence out with Scotland and wishes to purchase a dwelling in Scotland, the ADS may be payable, even where that individual owns no other dwellings in Scotland.
LBTT only applies to purchases of land and property in Scotland. A purchase of residential property located outside of Scotland will not attract LBTT liability, though it may be liable for any property transaction tax in that jurisdiction.
Example 21: Main residence owned elsewhere in UK, additional dwelling purchased in Scotland
Example 22: Dwelling owned overseas being retained as a main residence, holiday home being purchased in Scotland
Example 23: Overseas main residence being sold, next main residence being purchased in Scotland
Example 24: Dwelling owned overseas being retained as a rental property, next main residence being purchased in Scotland, existing main residence was rented
Example 25: Main residence owned in Scotland, holiday home being bought in England
Example 26: Two dwellings owned overseas, one rented out and one main residence, next main residence being purchased in Scotland, existing main residence being replaced
iii) What is the value of the dwelling?
The ownership interest in a dwelling with a market value of less than £40,000 will not be counted as owned by the buyer when determining the number of dwellings owned for the purposes of the LBTT(A)(S)A 2016. Consequently, any existing dwelling or dwellings owned by the buyer acquiring the dwelling which has or have a market value of less than £40,000 can therefore be discounted.
The relevant date at which the market value of the ownership interest in the dwelling must be determined is the effective date of the transaction. Further details on the effective date of a land transaction in Scotland can be found in parts LBTT10019 and LBTT1004 of the guidance. This will be particularly relevant if a dwelling already owned by the purchaser is considered to have a market value of under £40,000. Evidence to support a valuation of less than £40,000 may be requested by us.
Where a buyer owns a dwelling or dwellings that they are not selling, they must make a reasonable estimate of the market value of that existing dwelling or dwellings as at the end of the effective date of the next main residence purchase transaction. As the existing dwelling or dwellings will not be on the market, this will be an estimate and must be supported by evidence.
In determining the market value of an existing dwelling, the market value of any interest or right pertaining to ownership of the dwelling, such as enforcement rights in relation to title conditions or servitude rights of access, must not be artificially severed.
For the avoidance of doubt, where a buyer owns more than one existing dwelling, the £40,000 limit applies to each separate dwelling rather than to the aggregate value of all of the dwellings owned by that buyer.
The LBTT(A)(S)A 2016 refers to an ownership interest in a dwelling. In most cases this will equate to outright ownership of the dwelling. However there are cases where a person may not own the dwelling outright, but instead have a form of ownership interest in it. For example, if a person is a tenant under a long lease of more than 20 years, they are deemed for the purposes of the ADS to own that dwelling and it is the value of that ownership interest, rather than the value of the dwelling itself that is relevant in working out whether the market value is £40,000 or more.
The exceptions to the rule of looking at the value of the ownership interest are cases where beneficiaries under certain trusts and individuals who hold liferents over properties are deemed to own them. See parts LBTT10063 and LBTT10064 of the guidance for further detail of these concepts. When someone is deemed to own a dwelling because they have either of these two interests in that dwelling, it is the value of the actual dwelling that is relevant in establishing the market value, rather than the value of the ownership interest.
Transactions with a relevant consideration under £40,000 do not require an LBTT return to be made to us. This remains the case for purchases of additional dwellings with a market value of less than £40,000. However where the ADS applies to any transaction with a consideration of £40,000 or more, an LBTT return must be made.
Example 27: Buy-to-let purchase, consideration less than £40,000
Example 28: First portfolio purchase, existing main residence worth less than £40,000
Example 29: Portfolio dwellings each worth less than £40,000, main residence being replaced
Example 30: Holiday home purchase, main residence not being replaced, main residence has high value title conditions enforcement right