Standard residential leases, such as short assured tenancies, are exempt from LBTT therefore any dwelling for which a buyer has a tenant's interest under a standard residential lease is not counted when determining what counts as a dwelling owned by a buyer for the purposes of the LBTT(A)(S)A 2016. Where a buyer is a tenant of a dwelling under a "long residential lease" (a lease of residential property for a term in excess of 20 years), however, this may require to be counted as a dwelling owned by that buyer for the purposes of the LBTT(A)(S)A 2016.
The LBTT(A)(S)A 2016 provides that, where a tenant has an interest in a dwelling held under a long residential lease, that tenant is treated as being the owner of the dwelling ("deemed ownership") and the landlord under that lease is treated as not being the owner.
The Land Tenure Reform (Scotland) Act 1974 (the 1974 Act) in effect prevents the creation of new long residential leases. Leases of residential property for a term of more than 20 years cannot therefore be granted in Scotland.
All long residential leases granted prior to the commencement of the 1974 Act which comprised a "qualifying lease" of residential property, as defined in paragraph 3(3) of schedule 1 to the LBTT(S)A 2013 and section 1 of the Long Leases (Scotland) Act 2012 (the Long Leases Act), automatically converted to ownership on 28 November 2015 by virtue of the Long Leases Act.
A "qualifying lease" under the Long Leases Act, in respect of residential property, is generally, a lease which, immediately before 28 November 2015, was:
(b) granted for a period of more than 175 years and had more than 100 years remaining;
(c) had an annual rent of under £100.
Broadly, qualifying leases are analogous to "leasehold" title in England and Wales.
However, where a buyer in a transaction has an interest in a dwelling held under a long residential lease which either did not fulfil the statutory conditions for conversion to ownership required by the Long Leases Act or was exempt from conversion under that Act, that dwelling will require to be counted as a dwelling owned by that buyer for the purposes of the LBTT(A)(S)A 2016.
Further, any dwelling in either the rest of the UK or the rest of the world in which a buyer in a transaction has an interest on a leasehold basis equivalent to ownership in Scotland will require to be counted as a dwelling owned by that buyer for the purposes of the LBTT(A)(S)A 2016. Long residential leases are much more common in England and Wales and similar legal systems where the tenant's interest is known as "leasehold". Further details relating to leasehold interests outside of Scotland can be found in part LBTT10012 of the guidance.
For the avoidance of doubt, the provisions of the LBTT(A)(S)A 2016 directly apply to any transaction in which the buyer acquires a "qualifying lease" of residential property. Where a buyer acquires such an interest in a dwelling held under a qualifying lease, the interest acquired is not a tenant's interest, but an ownership interest. Accordingly, the transaction will attract both LBTT at the standard residential rates and, if applicable, the ADS. Where the new acquisition is of a long residential lease that is not, for technical reasons, a ‘qualifying lease’, the transaction will be exempt under schedule 1 to the LBTT(S)A 2013, although as mentioned the interest acquired will be counted as ownership for the purposes of counting owned properties under schedule 2A where purchases of additional dwellings are made.
Example 59: Purchase of long residential lease dwelling which has converted to ownership
Example 60: Purchase of dwelling, existing main residence held under an unconverted long residential lease
Example 61: Purchase of next main residence, existing main residence held under a short residential lease