Land and Building Transactions Tax (LBTT) is a progressive tax system where the amount of tax paid depends on the purchase price of the property. This tax is especially pertinent for people venturing into homeownership for the first time because it provides reliefs for first-time buyers in Scotland.
A first-time buyer is defined as an individual who has never owned a freehold or leasehold interest in residential property in Scotland or anywhere else in the world and intends to occupy the property they are purchasing as their only or main residence.
Conditions/Rules for Claiming
First-Time Buyer Relief
Relief is available for first-time buyers where the relevant consideration for the residential property is less than or equal to £175,000. The specific legislation governing first-time buyers’ relief is detailed in Schedule 4A of the Land and Buildings Transaction Tax (Scotland) Act 2013.
This relief provides significant LBTT savings to first-time buyers, but certain conditions must be met to qualify for the relief:
1. Major Interest in a Residential Property
Interest can be owned or acquired through purchase, gift, or inheritance. The relief is not available where the buyer or, in the case of joint purchases, each buyer has owned an interest in a residential property in the UK or anywhere else in the world. In joint purchases, both buyers need to be first-time buyers and should not have an interest in any other dwelling.
For Example,
Simon inherited a residential property from his parents, which he currently rents out while he resides in rented accommodation himself. Although he has never purchased a property before, he will not be eligible for first-time buyer’s relief. This is because, for the purposes of the relief, having a beneficial interest in a dwelling, including one acquired by inheritance, is sufficient to disqualify an individual. Accordingly, Simon’s interest in the inherited property means he cannot be treated as a first-time buyer moving forward.
2. Purchase of Residential Property that Includes a Single Dwelling
Relief is only applicable when the purchaser is purchasing a residential property that has only a single dwelling. Buying more than one dwelling in a single transaction does not qualify for relief. So, it is crucial to determine how many dwellings a premises contains.
A self-contained part of a building is deemed a single dwelling if its residents can live independently from those in the rest of the building, with independent access and domestic facilities.
For Example,
Sophie and Edward, husband and wife, are purchasing a property that contains two separate dwellings, each worth £ 85,000, in a single transaction. In this case, even though both of them are first time buyers the does not qualify for the first time buyers relief.
3. Intention to Occupy the Dwelling as a Main Residence
A main residence is a place where an individual generally resides. To claim first-time buyer relief, you must intend to occupy the property you purchase as your only or main residence. However, it is not necessary to occupy the property immediately after the purchase. But the buyer must have a clear intention to use the property as his/her only or main residence at on the effective date of transaction.
For Example,
Alex and his girlfriend Kate, both first-time buyers, jointly purchase a property. Since only Alex plans to use it as his main residence, they do not qualify for the relief. Both must intend to use the property as their only or main residence.
4. Not a Linked Transaction
A linked transaction involves transactions that involve the same buyer and seller, or those closely associated with either party, forming part of a single scheme.
Generally, first-time buyer relief is not available for linked transactions. However, you can claim relief even if it would be a linked transaction if the transaction involves the purchase of a garden, grounds or interests or rights in the land that benefits the dwelling.
For Example,
A husband and wife, both first-time buyers, jointly purchase a house with a garden. They structured the deal by first buying the house for £150,000 and later purchasing the garden for £30,000. In this scenario, first-time buyer relief is available even though the transactions were linked to one another.
5. If the transaction is not Subject to the Additional Dwelling Supplement (ADS)
The Additional Dwelling Supplement (ADS) typically applies when a buyer purchases a property that results in him/her owning more than one dwelling. This supplement is an extra LBTT charge of 8% of the purchase price if the additional dwelling costs £40,000 or more.
For Example,
John owns two residential properties. If he intends to replace his main residence with a new property, he cannot claim first-time buyer relief.
LBTT Rates for First-Time Buyers
First-time buyer relief means no tax is charged on the first £175,000 of the property price. It raises the zero-tax threshold for first-time buyers from £150,000 to £175,000. First-time buyers purchasing a property above £175,000 benefit from the relief on the portion below the threshold. This relief can save up to £600.
Purchase price | LBTT Rate |
|---|---|
Up to £175,000 | 0% |
£175,001 to £250,000 | 2% |
£250,001 to £325,000 | 5% |
£325,001 to £750,000 | 10% |
Over £750,000 | 12% |
Comparing LBTT in Scotland and SDLT in England
Land and Buildings Transaction Tax (LBTT) in Scotland and Stamp Duty Land Tax (SDLT) in England are taxes on property transactions. While they serve a similar purpose, the rates and thresholds differ. LBTT is managed by Revenue Scotland, and SDLT by HM Revenue and Customs in England. Both taxes have provisions for first-time buyers, but the rules governing them differ significantly from one another.Subject | SDLT | LBTT |
|---|---|---|
Legislation | Schedule 6ZA of FA 2003 | Schedule 4A of LBTT Act 2013 |
Threshold | £300,000 of chargeable consideration | £175,000 of chargeable consideration |
Conditions |
|
|
Joint owners | In case of more than one buyer, the relief is only available when both purchasers meet all the conditions. | In case of more than one buyer, the relief is only available when both purchasers meet all the conditions. |
Relief above the threshold | First time buyers buying a property above £500,000 will not be able to claim the relief at all | First time buyers buying a property above £175,000 will also benefit from the relief on the portion of the price below the threshold |
Guidance | SDLTM29800 | LBTT3048 |
Conclusion
First-time buyer relief is a key part of the government's efforts to promote homeownership by reducing the initial costs for first-time buyers. This helps them address affordability issues and step onto the property ladder.
However, the first-time buyer relief scheme for LBTT can be more complex than it appears. At UK Property Accountants, we help you navigate the scheme's intricacies and provide expert advice on saving on LBTT. Our services go beyond claiming first-time buyer relief. We offer thorough financial planning advice to ensure you make the most of your new homeownership. From budgeting to long-term tax strategies, we're committed to your ongoing financial success.
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