A transaction is a residential property transaction if:
- 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.
Residential property is:
- a building that is used or suitable for use as a dwelling, or is in the process of being constructed or adapted for use as a dwelling
- land that forms part of a garden or grounds of a building suitable for use as a dwelling, this includes any buildings or structures on such land or
- an interest in or right over land that subsists for the benefit of any of the above.
An interest in or right over land may be, for example, a ‘servitude right of access for maintenance purposes. A servitude is a burden on land in favour of other land. The land over which the servitude is exercised is known as the burdened property or servient tenement; the land that benefits from the exercise of the servitude is known as the benefited property or dominant tenement.
As well as the above, buildings (or part of a building) used for the following purposes are residential property:
- residential accommodation for school pupils
- residential accommodation for students – but not halls of residence for students in further or higher education which is treated as non-residential
- residential accommodation for members of the armed forces
- an institution that is the sole or main residence of at least 90% of its residents and is not one of the following:
- a home or other institution providing residential accommodation for children
- a hall of residence for students in further or higher education
- a home or other institution providing residential accommodation with personal care for persons in need of personal care by reason of old age, disability, past or present dependence on alcohol or drugs or past or present mental health condition
- a hospital or hospice
- a prison or similar establishment
- a hotel or inn or similar establishment
Use at the effective date
The use, or suitability for use, of the property as a dwelling is to be assessed at the effective date of the transaction. The use at the effective date overrides any past or intended future use for the purpose of establishing whether or not a property is residential.
Meaning of ‘Dwelling’
- ‘Dwelling’ does not have a defined meaning for LBTT. Revenue Scotland use the everyday meaning of ‘dwelling’ which is: ‘a building, or a part of a building, that gives those who use it the facilities required for day-to-day private domestic living and a sufficient degree of permanence.’
- A dwelling also includes buildings in the process of construction or adaption for such use.
No single factor will determine the suitability for use as a dwelling although factors to be considered include:
- Physical configuration of the building including independent access
- Bathroom facilities
- Kitchen facilities
- Accommodation for living and sleeping
- Security
- Degree of permanence
Caravans, mobile homes or houseboats will not normally be considered as dwellings unless they become sufficiently fixed to the land that they become part of the land. In such cases, these may be a dwelling if they meet the normal definition.
In addition, holiday homes/lets, including those which cannot be used all year round, will be residential property. A property used as part of a furnished holiday letting business will be a residential property whether the property is assessed to Council Tax or Non-Domestic Rates, as in most cases the building could be used as a single dwelling house without permission from the relevant local authority.
For transactions involving 6 or more residential properties, for the purposes of LBTT, these are treated as non-residential transactions.
Garden and grounds
Where the land in question forms part of the garden or grounds of a dwelling and is for the benefit of the dwelling, the residential rates will apply.
There is no statutory size limit for garden and grounds to be considered residential for LBTT purposes, unlike the ‘permitted area’ for the purposes of Capital Gains Tax. It will instead be a question of fact whether the land (including any building or structure on such land) is considered to be the garden and grounds of the dwelling.
Garden and grounds can include but are not limited to:
- Grounds for hobbies / leisure activities e.g. tennis courts, paddocks, bee hives
- Storage areas e.g. garages, barns, stables
- Water features / waterways e.g. ponds, streams, swimming pools, lakes
- Flower / vegetable gardens / walled gardens
- Outbuildings e.g. conservatories, orangeries, greenhouses
- Fields / woodland e.g. non-commercial paddocks, orchards, grazing
Constructed or adapted for use
It is an objective test as to whether a building is in the process of adaption or construction for use as a dwelling at the effective date. Intention alone is not sufficient.
Planning permission is not enough to consider a dwelling being under construction. However, once construction has begun - which is considered to be once building works start on top of a foundation - with the intended use on completion as a dwelling, this will be considered residential.
Preparatory works, including demolition of previous buildings and site preparation are not considered sufficient to determine that construction of a dwelling has started. These may be considered ‘construction works’ but they do not yet involve the construction of the building for use as a dwelling.
Change of use
From residential to non-residential
A change of use from residential to non-residential property takes effect from the time that the associated planning permission and any building warrant for conversion works have been fully implemented.
This is when:
- a completion certificate has been given for any work requiring building warrants and
- a submission has been made under section 27B of the Town and Country Planning (Scotland) Act 1997, notifying the local authority of completion of the development.
Where there are no works involved in a change of use planning application any change would be from the point the change actually occurs. Full documentation should be kept.
If the effective date of the land transaction takes place earlier than the change of use takes place, residential rates will apply.
From non-residential to residential
Where the proposed change is from non-residential to residential, for LBTT purposes the property becomes residential as soon as any construction / adaptation for such use begins.
For further guidance see:
LBTT4012 The meaning of non-residential
The ADS
For an additional dwelling with a purchase price of £40,000 or more, the ADS is applicable. The ADS is a flat rate of 6% on the consideration for the relevant dwelling which is paid in addition to the LBTT calculated.
Example calculations
Green and Pink purchase a new dwelling to use as their home. They have already sold their previous main residence therefore no Additional Dwelling Supplement is due. The purchase price for their new main residence is £1,200,000.
LBTT will be calculated at residential rates and bands:
| Up to £145,000 | Nil Rate Band | £0.00 |
| Above £145,000 to £250,000 | 2% | £105,000 x 2% = £2100 |
| Above £250,000 to £325,000 | 5% | £75,000 x 5% = £3750 |
| Above £325,000 to £750,000 | 10% | £425,000 x 10% = £42,500 |
| Above £750,000 | 12% | £450,000 x 12% = £54,000 |
| Total LBTT due | £102,350 |
Purple buy an additional dwelling as a holiday home for £197,000. The ADS will be due as this is an additional dwelling for Purple.
The LBTT is calculated at residential rates and bands:
| Up to £145,000 | Nil Rate Band | £0.00 |
| Above £145,000 to £250,000 | 2% | £52,000 x 2% = £1,040 |
| LBTT | £1,040 | |
| ADS | 8% | £15,760 |
| Total LBTT | £16,800 |
Pink buys 4 flats in a block in one transaction. The total cost is £1,260,000.
The flats will come under residential rates and bands. As they are all in one transaction, MDR can be claimed. ADS is due on all 4 flats as they are additional dwellings.
To calculate the LBTT due where MDR is applicable, the following steps are followed:
Total consideration = £1,260,000 / 4 = £315,000 average consideration
Residential rates and bands:
| Up to £145,000 | Nil Rate Band | £0.00 |
| Above £145,000 to £250,000 | 2% | £105,000 x 2% = £2100 |
| Above £250,000 to £315,000 | 5% | £65,000 x 5% = £3250 |
| LBTT due on each flat | £5,350 | |
| ADS due on each dwelling | 8% | £25,200 |
| Tax due on each dwelling (DT) | £30,550 | |
| DT (Tax Due) x ND (number of dwellings) = ∑DT | ||
| ∑DT = £30,550 x 4 | £122,200 | |
| Tax due under one transaction £1,260,000 | ||
| Up to £145,000 | Nil Rate Band | £0.00 |
| Above £145,000 to £250,000 | 2% | £105,000 x 2% = £2100 |
| Above £250,000 to £325,000 | 5% | £75,000 x 5% = £3750 |
| Above £325,000 to £750,000 | 10% | £425,000 x 10% = £42,500 |
| Above £750,000 | 12% | £510,000 x 12% = £61,200 |
| LBTT due | £109,550 | |
| ADS due | 8% | £100,800 |
| £185,150 | ||
| There is a minimum prescribed amount (MPA) | 25% | £52587.50 |
| The MPA £52,587.50 is less than the calculated amount with relief therefore the charge will be £122,200. | ||
| MDR | £88,150 | |
| Total LBTT due | £122,200 |
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