Where a contract for a land transaction is to be completed by a conveyance, the buyer is not regarded as entering into a land transaction because they entered into the contract. The contract must be completed for a land transaction to be made. There are, however, some particular circumstances that must be considered to determine the effective date.
In a standard house purchase the contract is the missives and the conveyance is the disposition. The effective date will be the date of settlement as described in LBTT1004.
A contract for a land transaction is entered into when missives are concluded in writing. The Requirements of Writing (Scotland) Act 1995 requires a written document for constituting a contract for the creation, transfer, variation or extinction of a real right in land.
Requirements of Writing (Scotland) Act 1995 section 1
To determine the effective date in certain non-standard cases, the LBTT legislation includes the concept of ‘substantial performance’ of a contract. A contract is substantially performed if:
- the buyer or a person (connected with the buyer) takes possession of the whole (or substantially the whole) of the premises;
- a substantial amount of the consideration is paid or provided; or
- there is an assignation, sub-sale (but not where sub-sale development relief applies – see LBTT3044) or other transaction whereby a third party is entitled to call for a conveyance to the third party.
Revenue Scotland will consider what constitutes a ‘substantial amount of the consideration’ on a case by case basis. Substantially performed is not defined by a percentage figure. It is possible that less than 90% might be considered to be substantial based on the facts of the case.
Where a contract is completed by a conveyance without having previously been ‘substantially performed’
Where a contract is completed by a conveyance without having previously been ‘substantially performed’, the contract and conveyance comprise a single land transaction and the effective date is the date of completion (i.e. in a normal house purchase, the date of settlement). In a standard house purchase settlement is when the purchase price is paid by the buyer in exchange for the seller delivering the keys and disposition.
Substantial performance of a contract without completion
Where a contract is substantially performed but not completed the contract is treated as the transaction and the effective date is the date when the contract was substantially performed.
Where a transaction is substantially performed and then is formally completed, then the contract and any subsequent completion are treated as two separate land transactions but tax is chargeable on the second transaction to the extent only that the consideration exceeds that on the first transaction. There may however be a requirement to notify the completion.
Where a contract has been substantially performed and is subsequently rescinded or annulled, or is for any other reason not brought into effect, any tax paid can be repaid to the buyer.
If the claim for repayment is made within 12 months of the filing date (see section 83 of the RSTPA 2014) then the claim must be made by amending the LBTT return (see LBTT4006) in respect of the contract. If the claim for repayment is made after this period, the claim must be made under section 107 of the RSTPA 2014 and no later than five years after the date the original LBTT return was required to have been made by (see section 115 of the RSTPA 2014). For further guidance on how to make such a claim see RSTP7003.
Separate rules apply for a lease that has been substantially performed without having been executed (see LBTT6002 - Key concepts | Revenue Scotland).
Substantial performance and the effective date in the context of lease transactions is also covered at LBTT6002 - Key concepts | Revenue Scotland).
LBTT(S)A 2013 schedule 19 paragraph 25
If the contract is conditional (i.e. subject to suspensive conditions), the contract date will usually still be taken as the date that the conditional contract was entered into/signed. This is because a binding contract has been entered into at this point. Where we believe this rule may have been abused, we will make contact with the relevant parties to ascertain if the return needs to be amended and any additional tax paid.