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Essential Guide for First-Time Homebuyers in Scotland

Published by UK Property Accountants
Posted Date: June 13, 2024 , Modified Date: July 16, 2024

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, in Scotland, LBTT provides specific reliefs for first-time buyers.

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 join purchases, both the buyers must be first-time buyers and they should not have owned a dwelling.

For Example, 

Simon owns a dwelling but has rented it out. Meanwhile, he himself lives in a rented accommodation. He intends to purchase a property in his name, but he won’t be able to claim a relief because he already owns a dwelling.

2. Purchase of Residential Property that Includes a Single Dwelling

Relief is exclusively applicable when purchasing a residential property as 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, purchased two dwellings worth £170,000 in a single transaction. In this case, though the property’s value is below the limit of £175,000, they still cannot claim first-time buyer 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, you do not need 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 for linked transactions involving the purchase of a garden, grounds, or interests or rights in land that benefit the dwelling, provided the total consideration does not exceed £175,000.

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 £20,000. In this scenario, first-time buyer relief is available because the total consideration of £170,000 is well below the threshold limit of £175,000.

5. Transaction is not Subject to the Additional Dwelling Supplement

The Additional Dwelling Supplement (ADS) typically applies when a buyer purchases a property that results in him/her owning more than one dwelling without replacing their main residence. This supplement is an extra LBTT charge of 6% 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

LBTT Rates for homebuyers

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

Tax Due - With Relief

Tax Due - Without Relief

£150,000

£0

£100

£175,000

£0

£600

£200,000

£500

£1,100

£250,000

£1,500

£2,100

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 and varying rates depending on the property's value.

Subject

SDLT

LBTT

Legislation

Schedule 6ZA of FA 2003

Schedule 4A of LBTT Act 2013

Threshold

£625,000 of chargeable consideration

£175,000 of chargeable consideration

Conditions

  • Transaction consists of a major interest in a single dwelling
  • Relevant consideration for the transaction is not more than £625,000
  • Intention of occupying the purchased dwelling as the purchaser’s only or main residence
  • Transaction is not linked transaction
  • Relief may not be claimed under this paragraph for a chargeable transaction if it is a higher rates transaction for the purposes
  • Transaction is an acquisition of a major interest in single dwelling
  •  Land consists entirely of residential property and includes a dwelling
  • Intention of occupying the dwelling as purchaser’s only or main residence
  • Transaction should not be linked transaction
  • Relief may not be claimed under the schedule 2A (additional amount; transactions relating to second homes)

Joint owners

In case of more than one buyer the relief is only available to those who meet all the conditions

In case of more than one buyer the relief is only available to those who meet all the conditions

Relief above the threshold

First time buyers buying a property above £625,000 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.

Need more expert advice on First-time homebuyers relief?

Contact us today for efficient and
hassle-free assistance.

UK Property Accountants
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