June 2018 – First time buyers & a “Land and Buildings Transaction Tax” break

Author: Mitchells Roberton
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  • Some modest relief from “Land and Buildings Transaction Tax” (“LBTT”) has been introduced for first-time buyers. The relevant statutory order (the snappily-titled “Land and Buildings Transaction Tax (First-Time Buyer Relief)(Scotland) Order 2018”) came into force on 30th

  • In outline, the relief and the conditions for qualifying for the relief are as follows.

Description of relief

  • First-time buyer relief is available to any first-time buyer who acquires a “dwelling” which they intend to occupy as their only or main residence.
  • The relief only apples to transactions where the “missives” (or contract) is entered into on or after 9 February 2018 and where the “settlement” (or completion) of the contract is on or after 30 June 2018.

The conditions for the relief

  • There are various qualifying conditions all of which must be met for the relief to be available.
  • It’s important to note that where there is more than one buyer the relief will be available only if each buyer meets all the relevant criteria. If any of the buyers do not meet all the conditions then the relief will not be available.
  • The conditions are:

(a)          unsurprisingly, you must (generally) be buying a dwelling;

(b)          what you are buying must consist entirely of residential property;

(c)           you must be a first-time buyer and intend to occupy the dwelling as your only or main residence;

(d)          the transaction must not be a “linked transaction”; and

(e)          the transaction must not be one to which “Additional Dwelling Supplement” for LBTT purposes applies.

Conditions (a) and (b) are fairly self-explanatory but the others call for some comment.

Condition (c) – “first-time buyer”

  • A “first-time buyer” means an individual who does not own – nor has previously owned – a dwelling in Scotland – or the rest of the UK or the rest of the world.
  • That should usually be fairly straightforward. But not always; for example, a dwelling for which an individual holds a tenant’s interest under certain types of lease in the rest of the UK would count towards dwellings owned by an individual; and gifted or inherited dwellings and some dwellings held in “trust” may also be taken into account when determining if an individual is a first-time buyer.

Condition (c)“only or main residence”

  • For the dwelling to count as the buyer’s “only or main residence” the buyer does not need to occupy the dwelling immediately upon purchase. For example, if structural repairs or renovation work are required then it may be that the buyer moves to temporary accommodation until they are complete.
  • But relief cannot be claimed where evidence clearly shows that either another dwelling will continue to be the buyer’s main residence or that the newly purchased dwelling has been acquired for some other purpose (such as its being acquired using a buy-to-let mortgage).

Condition (d) – the transaction is not a “linked transaction”

  • For the purposes of LBTT generally the rules aim to prevent parties reducing the tax payable by artificially splitting up transactions into two or more separate transactions.
  • Those “linked transaction” rules will generally apply. However, they do not apply for first time buyer relief if the linked transaction is the acquisition of:

(a)          land that is, or is to be, occupied or enjoyed as the garden or grounds of the dwelling upon which relief was claimed; or

(b)          land that subsists, or is to subsist, for the benefit of that dwelling.

  • In such instances, first-time buyer relief will be available on the total consideration of all the linked transactions.

Condition (e) – the transaction is not one to which the “Additional Dwelling Supplement” (“ADS”) applies

  • ADS is on top of the normal LBTT which applies when buying a home. ADS applies on purchases of additional residential properties – such as buy-to-let properties and second homes (see BPU 1 of 2016).
  • Unsurprisingly, first-time buyer relief is not available where ADS is payable. But this may arise in cases where things are not all that obvious. An example from the Revenue Scotland website illustrates the point:

“Joyce lives with her husband Rupert in a dwelling which is owned by Rupert. Joyce then purchases a dwelling for £200,000 which they will both use as their new main residence. Rupert will retain the current dwelling and use it as a holiday-let.

Joyce has never owned a dwelling and meets the definition of a first-time buyer. However, for the purposes of ADS, she is deemed to own the dwelling owned by Rupert, and as Joyce is not replacing her main residence – by selling or disposing of the ownership of her previous main residence – the ADS will apply to the transaction.

As first-time buyer relief is not available where ADS applies to a transaction, Joyce cannot make a claim for the relief on her LBTT return.”

Amount of relief

  • The relief effectively raises the zero tax threshold for first-time buyers from £145,000 to £175,000.
  • First-time buyers buying a property above £175,000 will also benefit from the relief on the portion of the price below the threshold. This means all first-time buyers will benefit from the relief by up to £600.

Note: This material is for information purposes only and does not constitute any form of advice or recommendation by us. You should not rely upon it in making any decisions or taking or refraining from taking any action. If you would like us to advise you on any of the matters covered in this material, please contact Alison Gourley: ajg@mitchells-roberton.co.uk

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