Land and Buildings Transaction Tax: review

Executive Summary

Purpose and scope

Land and Buildings Transaction Tax (LBTT) is a property transaction tax applied to chargeable land transactions in Scotland. It operates on a generally progressive basis, with different rate bands depending on the value of the transaction. The rates, thresholds, and rules vary for residential, non-residential, and mixed-use properties. A series of LBTT reliefs, providing whole or partial relief from the tax, is available. These include, for example, the multiple dwellings relief (MDR), the 6+ dwellings Additional Dwelling Supplement (ADS) exemption and first-time buyer relief.

LBTT was designed to be a fairer and more progressive alternative to the Stamp Duty Land Tax (SDLT), featuring graduated rates that provide greater benefits to lower-value transactions^[1]. Its key objectives include raising revenue for public services and providing scope for positively influencing property market activity. The legislation also seeks to simplify administration, prevent tax avoidance, and ensure closer alignment with Scotland’s legal framework.

This review assesses whether five areas of LBTT are achieving their intended policy objectives and how they interact: (i) treatment of non-residential and mixed-use property, (ii) MDR, (iii) 6+ dwellings ADS exemption, (iv) first-time buyer relief, and (v) alignment with Scotland’s Just Transition and Net Zero goals.

Approach and methods

The review drew on a wide range of sources, including official data, academic and policy literature, input from taxpayers and other stakeholders, and diverse forms of qualitative and quantitative analysis. Our approach was structured around three key strands:

1. A comprehensive desk-based review incorporating qualitative assessment of LBTT in relation to its theoretical foundations and objectives, comparative analysis with equivalent legislation in England and Northern Ireland and in Wales, and quantitative analysis of transaction volumes, tax revenues, and the impacts of specific reliefs.

2. Engagement with taxpayers and the property sector through semi-structured interviews with large landlords, commercial organisations, and climate change experts, alongside online surveys of prospective first-time buyers, recent first-time buyers, and individual investors.

3. Synthesis of all evidence gathered to develop policy recommendations in collaboration with a legal expert.

Literature review

The review of the literature surrounding LBTT highlighted the positives of the current LBTT’s progressive structure and the ability to target reliefs at specific market goals, such as first-time buyers and large-scale investment. LBTT faces specific criticisms around its complexity, market impacts, revenue volatility, and potential barriers to first-time buyers. Property transaction taxes, more generally, are also criticised by economists as economically distortionary, reducing market mobility and housing transactions. Supplemental charges on additional properties, such as the ADS, have also been criticised for reducing rental supply and contributing to higher rents, as landlords pass on these additional costs.

Non-residential and mixed-use treatment

Under LBTT, a separate tax structure applies to non-residential property or properties with both residential and non-residential elements, distinguishing them from fully residential transactions. Non-residential tax rates are generally lower than those applied to residential property. This aims to increase competitiveness and attractiveness for business investment in Scotland and ensure that smaller businesses pay lower LBTT rates. England and Northern Ireland’s SDLT and Wales’s Land Transaction Tax (LTT) take a broadly similar approach to commercial and mixed-use property as Scotland’s LBTT, though differences remain in the specific rates and band thresholds.

Our analysis indicates that revenues from residential property transactions have consistently exceeded those from non-residential transactions^[2]. Furthermore, a considerably higher proportion of LBTT relief claims arises from residential property transactions than non-residential ones, although the value of revenue forgone due to reliefs has been much greater in the non-residential sector. Despite the relatively more favourable treatment of non-residential transactions, residential property transactions became relatively more common in Scotland following the introduction of LBTT.

Stakeholder engagement found that most investors and landlords did not believe LBTT rate differences strongly influenced their investment behaviour, with only a small number of landlords or investors who had used or were aware of the mixed property rule. This awareness was particularly limited among smaller investors, but those familiar felt it simplified transactions involving mixed-use properties and supported Scotland’s competitiveness. Legal professionals highlighted significant ambiguity in property classification and inconsistencies in available guidance, calling for clearer, more detailed support and alignment with HMRC standards. Support was expressed across groups for an apportionment approach, taxing each property type at its corresponding rate, despite some concerns over potential valuation challenges.

MDR

The MDR is a partial LBTT relief available when a buyer acquires more than one dwelling in a single transaction or a series of linked transactions. This aims to support buy-to-let investors and large-scale residential property purchases by ensuring that a single transaction involving multiple dwellings is not taxed at a high tax band when the same dwellings purchased individually would have attracted a charge at lower tax bands. While Scotland retained its MDR as originally envisioned, England and Northern Ireland abolished their equivalent MDR under SDLT due to significant abuse. Wales continues to offer an MDR but has tightened the circumstances under which it can be claimed.

Our analysis found that the MDR accounted for 7-15% of total foregone revenue in the last ten years and 1-3% of total LBTT revenue. Compared with the 6+ dwellings ADS exemption and the first-time buyer relief, it accounted for the largest share of LBTT revenues forgone, although the gap between the three has narrowed recently.

Our stakeholder engagement showed that awareness and use of MDR are concentrated among larger landlords, developers, and institutional investors. Smaller landlords and individual investors generally reported that MDR has little influence on their investment decisions, as they generally purchase single properties or are ineligible to claim. Stakeholders who use MDR felt it fulfilled its purpose by smoothing tax liabilities, but viewed it more as removing a tax disincentive than providing an active investment incentive, with other polices having a more significant impact on investment decisions. While some noted the relief’s complexity, misuse in Scotland is minimal. Most stakeholders opposed its removal, arguing it supports development viability and maintains Scotland’s competitiveness. Some suggested reforming MDR to better incentivise large-scale housing delivery.

ADS and 6+ dwellings exemption

ADS is a supplemental tax charge on purchases of additional residential properties, payable on top of the standard LBTT, intended to reduce competition for first-time buyers by making second and subsequent home purchases more expensive. The ADS exemption for six or more dwellings applies to transactions involving six or more residential properties, meaning that such transactions are not subject to the ADS^[3]. This aims to promote large-scale rental housing provision and avoid deterring institutional investment in build-to-rent developments.

The current 8% ADS makes Scotland’s additional charge the highest in the UK as of 2025. The equivalent SDLT higher rates for additional dwellings in England and Northern Ireland are currently five percentage points above standard residential rates, as are Wales’s higher LTT rates for purchases of additional property. Like LBTT, both SDLT and LTT treat acquisitions of six or more dwellings as non-residential transactions, thereby granting relief from the additional homes SDLT and LTT higher rates.

Analysis indicated that net ADS revenue has increased over time, rising from 17% to 22% of total LBTT receipts over the period between 2016/17 and 2024/25. This is at least partly due to the rise in the ADS rate. The percentage of residential claims, including ADS, has been more stable, ranging from 17% and 20% over the period. Both the number of returns claiming ADS-linked reliefs and the value of revenue forgone have steadily increased over recent years. The share of overall forgone revenue reached 23% of the total in 2024/25. The 6+ dwellings ADS exemption accounted for 3-7% of total foregone revenue since 2018/19, which is similar to that of first-time buyer relief, at around half the value of MDR.

Stakeholder engagement found the ADS is unpopular, especially among landlords and small investors, who see it as a major barrier to market entry and investment, contributing to reduced housing supply and higher rents. The 6+ dwellings ADS exemption was viewed as effective in enabling large-scale investment but criticised for disproportionately benefitting institutional investors over smaller landlords, with concerns about market concentration and inequality. Some highlighted that this could slow small development activity and create threshold effects, with landlords seeking to meet exemptions by altering purchase behaviour. Views on reform were mixed. Some supported lowering the exemption threshold to broaden access for smaller landlords, while large investors suggested raising it to better target institutional-scale development. Others proposed exempting long-term rental properties or introducing time-limited ADS holidays to stimulate activity, but cautioned that complementary support for first-time buyers would be needed.

First-time buyer relief

The first-time buyers’ relief aims to help first-time buyers enter the property market by exempting the first £175,000 of the purchase price from LBTT. Compared to LBTT, SDLT appears to be more generous in its first-time buyer relief in that it exempts the first £300,000 of the price, provided the total purchase price does not exceed £500,000. However, LBTT’s more progressive overall rate structure lends additional, albeit less targeted, support to Scotland’s first-time buyers beyond its first-time buyer relief. Wales, in contrast, does not have a first-time buyer relief.

The first-time buyer relief accounted for 1-7% of total foregone revenue since 2018/19. Compared with the 6+ dwellings ADS exemption and the MDR, it accounted for the smallest share of LBTT revenues forgone, although the gap between the three has narrowed recently. Our impact analysis did not provide evidence of the introduction of the first-time buyer relief influencing first-time property purchases in Scotland, with the increase in such transactions reflecting a continuation of pre-existing upward trends.

Stakeholders generally viewed first-time buyer relief as helpful, providing modest but meaningful assistance for those facing deposit and affordability challenges. However, many perceived its influence on purchase decisions as limited, describing the relief as largely symbolic due to complex eligibility and the small maximum saving. Most agreed the £175,000 threshold is outdated, given rising house prices, and advocated for an increase or regional variation to better reflect market conditions. Survey findings showed relatively low awareness of the relief, with the idea of financial support appealing most to prospective buyers. While nearly half of recent buyers reported claiming the relief, many said it made little difference to their decision or felt the benefit was minor compared to overall costs. Views on imposing a cap for relief eligibility were mixed; some considered it fair to prevent high-value claims, while others cited regional price variation and the limited number of qualifying transactions as reasons against a cap. Overall, the relief was seen as a positive, if limited, measure supporting first-time buyers.

Alignment with Net Zero and Just Transition

Scotland has committed to achieving Net Zero greenhouse gas emissions by 2045 and ensuring a “Just Transition,” such that the move to a green economy is fair and equitable, distributing costs and benefits in a way that does not exacerbate social inequalities. While LBTT, along with SDLT and LTT, does not currently explicitly support these goals, this review explored stakeholder perspectives on how LBTT could be better aligned with Net Zero and Just Transition objectives.

Stakeholders strongly supported improving Scottish housing energy performance to achieve Net Zero, but were divided over whether LBTT is an effective tool for this purpose. Supporters proposed linking LBTT rates to EPC ratings or offering rebates for post-purchase energy upgrades, believing this could incentivise retrofitting, support local jobs, and promote a fair Just Transition. Others warned of potential unintended consequences, including disadvantaging older buildings, distorting the housing market, and adding complexity to the tax system. Many doubted that LBTT incentives would significantly change behaviour and raised concerns about the reliability of EPC ratings or the suitability of the tax for environmental goals. Alternative suggestions included grants, VAT reductions on green improvements, and existing retrofit schemes, which were seen as more direct and effective.

Conclusions and policy recommendations

This review finds that the LBTT largely functions as intended, providing progressive taxation of property transactions while offering targeted reliefs to support policy objectives. However, questions remain about the effectiveness of certain reliefs in achieving their stated aims, the appropriateness of differential treatment across transaction types, and the potential for LBTT to contribute to broader environmental and social policy goals.

The review makes six policy recommendations, accounting for trade-offs and tensions inherent to pursuing multiple objectives within a single tax framework:

1. Maintain the mixed property rule with targeted research on apportionment

Evidence does not support immediate modification, but research should examine the feasibility and implications of apportionment approaches, including administrative burden, avoidance risks, and revenue implications.

2. Retain the MDR in its current form

The relief ensures multiple dwelling transactions are not taxed at inappropriately high bands and supports buy-to-let investors and large-scale purchases. Revenue Scotland should continue monitoring for avoidance activity.

3. Conduct research into how the ADS could more effectively target second home ownership whilst mitigating negative impacts on the private rented sector

One option is for the ADS to offer an exemption or lower rate for properties intended for long-term rentals.

4. Maintain the 6+ dwellings ADS exemption threshold, but review periodically

The current threshold balances support for institutional investment with revenue generation objectives, though concerns about potential concentration of property ownership warrant ongoing monitoring.

5. Review the fiscal implications of increasing the threshold for first-time buyer relief and setting it on a regional basis

The relief is "withering on the vine" through fiscal drag. Regional variation in house prices means the relief is more effective in some areas than others, suggesting different thresholds for different local authority areas could be explored.

6. Explore alternatives to LBTT for incentivising a Just Transition to Net Zero

LBTT is a transaction tax affecting people at the point of property purchase – an infrequent event. More effective mechanisms include grants, loans, building regulations, and sector-specific requirements that provide regular, ongoing incentives for energy efficiency.