With one exception (see below), a lease of residential property over 20 years in duration may not be granted in Scotland. In other words, ‘leasehold’ title which is common in England and Wales is extremely rare in Scotland. This exemption therefore covers short duration residential leases in Scotland. A transaction relating to a lease of a residential property is only exempt where the main subject matter 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 an interest in land that is residential property.
Any artificial arrangements constructed to allow commercial arrangements to benefit from the residential exemption may fall foul of the Scottish General Anti-Avoidance Rule (see RSTP8001).
The one exception is certain long leases which are qualifying leases for the purposes of section 1 of the Long Leases (Scotland) Act 2012. These leases are not exempt from LBTT. Broadly, qualifying leases are long residential leases which are analogous to ‘leasehold’ title in England and Wales. The ‘owner’ of residential property on a leasehold-like basis in Scotland will probably be unaware that their title is different to a conventional Scottish title. The Long Leases (Scotland) Act 2012 will automatically convert most qualifying leases into the normal right of ownership on 28 November 2015. Where a residential lease is not a qualifying lease it is not sufficiently analogous to leasehold title to fall within the charge to LBTT.
Accordingly, the types of qualifying leases which will be chargeable to LBTT (and which do not benefit from the exemption) are:
- leasehold-like titles assigned between 1 April 2015 and 28 November 2015 – the assignation (acting in the place of a conventional disposition) cannot be registered in the Land Register unless any necessary LBTT return and arrangements for payment of tax are made. These titles will remain within the scope of LBTT following 28 November 2015 as ordinary Scottish titles to land; and
- any such titles assigned after 28 November 2015.
Licences of any type (residential or non-residential) are exempt - see LBTT6001.