Revenue Scotland guidance on LBTT additional dwelling supplement

By Anne-Marie Roberts, ICAS Head of Taxation, Scottish and Indirect Taxes

6 April 2016

Anne-Marie Roberts provides detail on guidance for the new additional dwelling supplement applied to LBTT and key differences with the SDLT higher rate applied in the rest of the UK.

The Land and Buildings Transaction Act (Amendment) (Scotland) Act 2016 came into force on 1 April, 2016. The legislation was passed by the Scottish Parliament on 8 March and received Royal Assent on 24 March, 2016.

This legislation introduces an additional dwelling supplement of 3% LBTT on specific transactions.The supplement applies to:

  • Most purchases of additional dwellings by individuals in Scotland where, at the end of the day that is the effective date of the transaction, the buyer, or one of the buyers, owns two or more dwellings and is not replacing their main residence.
  • Most purchases of dwellings in Scotland by non-natural persons – such as companies or partnerships.

For non-natural persons the “two dwellings” rule does not apply. The supplement applies to every purchase of a dwelling by a non-natural person (other than certain trust transactions). It is worth noting that full relief from the supplement is available for any transaction in which an individual or non-natural person purchases six or more residential properties in one transaction.

Revenue Scotland has issued guidance on the legislation and worked examples. They have also updated guidance on the completion of LBTT returns. The tax calculator for LBTT now includes the additional dwelling supplement.

There is still an option to submit a paper return for LBTT. A new version of the LBTT return form has been introduced to cover the introduction of the supplement and it is essential that the new version is used along with the additional dwelling supplement form if appropriate.

The Finance Bill 2016 (published on 24 March) includes legislation to introduce a similar higher rate of SDLT on certain purchases of residential properties in England, Wales and Northern Ireland.  The changes apply from 1 April, 2016 but the legislation could be amended during the progress of the Bill through the UK Parliament and the House of Lords. Based on the current version there will be differences in approach between the Scottish LBTT supplement and the UK higher rate of SDLT.  A few key differences are:

  • The LBTT legislation provides an 18-month window for the replacement of a main residence.  A refund of the additional supplement is made where an individual sells his or her previous main residence within 18 months of purchasing the new main residence. In contrast, the SDLT higher rate legislation provides a three-year window for the replacement of a main residence.
  • There is full relief from the LBTT supplement on the purchase (in one transaction) of six or more residential properties by an individual or non-natural person. By contrast, for SDLT the purchase of six or more residential properties in one transaction is treated as a non-residential property transaction.
  • For the LBTT supplement, married couples, those in civil partnerships and co-habitants (those living together as though married, including same-sex co-habitants) are treated as one economic unit and may therefore own only one main residence between them at any time without the supplement applying. The SDLT higher rate legislation treats married couples and those in civil partnerships as one unit but makes no reference to co-habitants.

It might be of some comfort to affected buyers in Scotland that the legislation and supporting guidance were available at the date of the introduction of the LBTT supplement. The higher rate of SDLT commenced on the same date across the rest of the UK, but without the certainty of final legislation and guidance.

What is clear is that there are subtle differences between the operation of the LBTT supplement and the SDLT higher rate that will add to complexity for taxpayers and advisers.

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  • Tax

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