Land and Buildings Transaction Tax: review

Introduction

• This review assesses whether five areas of Land and Buildings Transaction Tax (LBTT) are achieving their intended policy objectives and how they interact: (i) treatment of non-residential and mixed-use property, (ii) multiple dwellings relief (MDR), (iii) 6+ dwellings Additional Dwelling Supplement (ADS) exemption, (iv) first-time buyer relief, and (v) alignment with Scotland’s Just Transition and Net Zero goals.
• Methods combine desk-based analysis of legislation and data with stakeholder engagement and structured synthesis to ensure an objective, balanced assessment.

Land and Buildings Transaction Tax (LBTT) is a property tax charged on the purchase of land or property above a certain value in Scotland. Introduced as part of Scotland’s devolved tax system, LBTT applies differently depending on the type of property and the buyer's circumstances. This review was commissioned by the Scottish Government to assess whether specific areas of LBTT have met their intended policy objectives and consider if any are generating adverse effects. The project involved examining five specific aspects of LBTT: (i) the treatment of residential and non-residential, including mixed-use, conveyances; (ii) the multiple dwellings relief (MDR); (iii) the 6+ dwellings Additional Dwelling Supplement (ADS) exemption; and (iv) the first-time buyer relief; and (v) how LBTT aligns with Just Transition and Net Zero goals. We also examined the ADS, given its importance in the context of the wider LBTT and the 6+ dwellings exemption in particular.

A key aspect of our methodology was its reliance on a wide range of sources, including official data, literature, input from taxpayers and other stakeholders, and diverse forms of analysis, both qualitative and quantitative. Where this report references guidance published by Revenue Scotland, readers should note that this is provided solely for context. As set out in section 7 of the Revenue Scotland and Tax Powers Act 2014, Revenue Scotland is independent of the Scottish Ministers, who determine LBTT policy. Revenue Scotland’s published guidance represents its own interpretation of the underlying legislation but generally has no legal status, and should not be viewed as legal advice. Readers of this report should also refer to the relevant legislation.

Our approach was structured around three key strands:

1. Desk-based review: This strand of the review consisted of a comprehensive desk-based review incorporating both qualitative and quantitative analysis. The qualitative component assessed LBTT in relation to its theoretical foundations and objectives, drawing on insights from the literature and comparative analysis with equivalent legislation in England, Northern Ireland, and Wales. The quantitative component assessed the scale of transactions and associated tax revenues and examined the impacts of LBTT’s first-time buyer relief and non-residential treatment.

2. Engagement with taxpayers and the property sector: We used two modes of engagement – semi-structured interviews and an online survey. The interviews were conducted with large landlords, commercial organisations, and other key stakeholders, such as climate change experts. The online survey component was targeted at three distinct groups: (i) prospective first-time buyers, (ii) recent first-time buyers, and (iii) individual investors.

3. Synthesis and policy recommendations: Following the stakeholder engagements, we synthesised all evidence gathered to develop policy recommendations. These were developed in collaboration with legal expert Graeme Keay, who has extensive experience in legislative drafting and supporting the design and implementation of tax policy reforms.

Overview of LBTT

• LBTT is a property transaction tax payable to Revenue Scotland on chargeable land transactions in Scotland; buyers must submit a land transaction return and pay LBTT where due.
• The rate of LBTT on a property depends on its value, with higher-value properties subject to higher tax rates. The applicable rates, bands, and rules also vary depending on whether the transaction is residential, non-residential, or mixed-use.
• A series of LBTT reliefs and exemptions, providing whole or partial relief from the tax, are available. These include, for example, the MDR, 6+ dwellings ADS exemption and first-time buyer relief.

LBTT is Scotland’s devolved tax on land transactions. A “land transaction” is defined as the acquisition of a “chargeable interest” in land, referring to a real right (i.e., which is enforceable against everyone) or other interest in or over land in Scotland (Land and Buildings Transaction Tax (Scotland) Act 2013, ss 3-4). Land transactions in Scotland must be notified to Revenue Scotland with a land transaction return and any tax due unless the “chargeable consideration” (defined as anything given in money or money’s worth for the subject-matter of the transaction) is less than £40,000 or the transaction is otherwise exempt (Land and Buildings Transaction Tax (Scotland) Act 2013, ss 29-30 ). The process by which LBTT operates is summarised in the flowchart below.

LBTT provides for separate residential and non-residential regimes. Residential liabilities are calculated on a progressive basis according to the chargeable consideration, with a nil rate charged on purchase prices up to £145,000. Non-residential transactions have their own rates, bands, and rules (The Land and Buildings Transaction Tax (Tax Rates and Tax Bands) (Scotland) Order 2015). LBTT rates and bands are set by secondary legislation and have been amended periodically since LBTT came into force.

A series of LBTT reliefs, providing whole or partial relief from the tax, is available. These include:

• Multiple dwellings relief (MDR), which applies when a buyer acquires more than one dwelling in a single transaction or a series of linked transactions. LBTT is then computed using the average consideration per dwelling (subject to a minimum prescribed amount), which can reduce the overall liability. Note that the MDR does not displace the Additional Dwelling Supplement (ADS)^[4]. Where the ADS is applicable, it is added for each relevant dwelling within the MDR calculation (Land and Buildings Transaction Tax (Scotland) Act 2013, Sch 5).
• The 6+ dwellings ADS exemption, whereby if six or more dwellings are purchased in a single transaction, the purchase is treated as non-residential for LBTT purposes and fully exempted from the ADS (Land and Buildings Transaction Tax (Scotland) Act 2013, s 59 and Sch 2A).
• First-time buyer relief, under which first-time buyers purchasing their main residence can benefit from a higher nil-rate band of £175,000, increased from £145,000 (The Land and Buildings Transaction Tax (First-Time Buyer Relief) (Scotland) Order 2018).

Figure 1. Flowchart of LBTT operation

Start: A transaction takes place.

1. Is it a land transaction?

• If No: No notification required or charge to tax. (Process ends.)
• If Yes: Continue to Step 2.

2. Is it an exempt transaction?

• If Yes: No notification required or charge to tax. (Process ends.)
• If No: Continue to Step 3.

3. Is it notifiable?

• If No: No notification required or charge to tax. (Process ends.)
• If Yes: Continue to Step 4.

4. Is it exempt from charge by virtue of a relief?

• If Yes: Complete land transaction return. Then submit return. (No tax to pay.)
• If No: Calculate tax on the chargeable transaction, complete land transaction return, then submit return and pay tax.

Source: Adapted from Scottish Government (2013a).

Policy rationale and objectives

• LBTT was designed to be fairer and more progressive than SDLT, with graduated rates benefiting lower-value transactions.
• Key objectives include scope to influence economic activity and achieve desired behavioural outcomes through tax policy.
• The tax aims for simpler administration and better alignment with Scottish legislation and the legal system.
• Prevention of tax avoidance is a core design principle, with General Anti-Avoidance Rule provisions included.

LBTT was introduced in Scotland on 1st April 2015 as a fully devolved replacement to Stamp Duty Land Tax (SDLT). This followed the Scotland Act 2012, which granted the Scottish Parliament power to legislate for a tax on land transactions in Scotland. A comprehensive timeline of primary and secondary legislation relating to LBTT is provided in Appendix 1.

The overarching aim, as per the 2012 consultation report for LBTT, was to establish Scotland’s own tax system for property transactions, managed in Scotland’s interests and aligned with Scots law and institutions. This was echoed in Stage 1 of the bill’s legislative process by then Finance Secretary John Swinney, who additionally noted that LBTT seeks to simplify the content and structure of the law, recognising that the SDLT suffers from many added layers of legislation (Scottish Parliament, 2013). Moreover, SDLT is premised on property law principles applicable in England and the UK and, to the extent of substantive differences between England and Scotland, SDLT, at least for some aspects, has struggled to fully address the different underlying property law principles.

As the first new exclusively Scottish tax in over 300 years, LBTT was seen as an opportunity to design a tax better suited to Scotland’s economy and values, reflecting a “Scottish approach to taxation” founded on principles of certainty, convenience, efficiency, and proportionality to the ability to pay (see below) (Scottish Parliament, 2013; Revenue Scotland, 2020).

Adam Smith’s principles of taxation

The Scottish Government’s approach to taxation is grounded in four principles first espoused by Adam Smith in The Wealth of Nations (Revenue Scotland, 2020):

“Certain: The tax which each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, the manner of payment, the quantity to be paid, ought all to be clear and plain to the contributor, and to every other person."

"Convenient: Every tax ought to be levied at the time, or in the manner, in which it is most likely to be convenient for the contributor to pay."

"Efficient: Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible, over and above what it brings into the public treasury of the state."

"Proportionate to the taxpayer’s ability to pay: The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities."

In addition to the four principles outlined above, Scottish Government (2021b) also added two further principles of good tax policy-making: (i) Engagement - “People and businesses should be able to understand the tax system” and (ii) Effectiveness - “Design of the tax system should focus on ensuring taxes raise the expected revenues and achieve their intended aims.”

The rationale for a tax specifically on land transactions in Scotland was set out in the 2012 consultation report for LBTT. Namely, it serves to (i) raise revenue for public services by levying tax on those purchasing property or entering into leases of significant value, and (ii) provide scope for positively influencing activity in the residential and non-residential property markets.

A further intention of LBTT, as expressed in the Scottish Parliament, was to prevent tax avoidance and, in particular, not inherit the same loopholes as SDLT, which enable avoidance activity. For example, a decision was taken to introduce LBTT without sub-sale^[5] rules, in recognition of the role played by sub-sales under SDLT in constructing land transactions in such a way that no tax is paid (Scottish Parliament, 2013).

Based on the 2012 consultation report, the original objectives of LBTT at the time of its introduction can be summarised as:

1. To raise revenue through a fairer and more progressive tax

2. To provide scope for positively influencing activity in the residential and non-residential property markets

3. To simplify the content and structure of the law governing the taxation of land transactions and bring it into alignment with Scots law and practices

4. To prevent tax avoidance and protect public revenues

A fairer and more progressive tax

LBTT’s objective to raise revenue for public services from those able to afford land and property purchases is widely shared by land transaction taxes, including SDLT. However, LBTT’s design sought to make the distribution of the tax burden fairer and more progressive compared to SDLT’s “slab” structure. Under SDLT, a single rate was applied to the entire purchase price once a threshold was crossed, causing sharp increases in tax liability at price cut-offs and distortions in market prices. As evident from the Official Report of the Scottish Parliament’s meeting on 25th April 2013, Scottish Ministers viewed SDLT’s slab system as inequitable and economically inefficient. LBTT was therefore deliberately structured as a progressive tax: different rates apply only to the portion of the price within each band, rather than one rate on the full price. Ministers stated that the intention was for the tax paid to be proportionate to the taxpayer’s ability to pay, adhering to the principle that those with higher-value properties, and who accordingly have a higher ability to pay, should pay more tax in relative terms. This progressive rate structure was expected to eliminate the abrupt jumps in tax that distorted pricing under SDLT, reducing artificial bunching of sales just below the thresholds previously applying under SDLT. While some concerns were raised at Stage 1 of the bill’s legislative process that the progressive structure could have an undue negative impact on high-value transactions liable to the top LBTT rate, the principle of aligning burden with ability to pay received broad support across stakeholder groups and political parties in Scotland (Strohm, 2014; Scottish Parliament, 2013).^[6]

Scope for influencing economic activity

Beyond revenue and fairness, LBTT’s policy rationale included using the tax as a lever to influence the property market in socially desirable ways. This relies on a premise that transaction taxes can affect buyer behaviour – a widely accepted view in economics literature. A prominent example of where the Scottish Government sought to influence market activity through LBTT was in relation to the impact of SDLT’s slab structure on buyer behaviour (e.g. artificial bunching beneath thresholds), which was repeatedly characterised as distortionary. Notably, the then Finance Secretary claimed that “LBTT will solve this in Scotland at a stroke, by substituting a progressive structure where only the amount above the threshold will incur tax at the higher rate" (Strutt and Park, 2013). A further example was LBTT’s envisioned role in stimulating activity among first-time buyers and those at the lower end of the housing market. The Finance Secretary acknowledged a key objective for LBTT to “make sure that first-time buyers have the greatest possible chance to enter the housing market” (Law Society of Scotland, 2016). Moreover, the initial LBTT rates were set so that a buyer purchasing an average-priced home in Scotland (£162,000 at the time) would either pay less tax or be exempt, due to a higher zero-tax threshold (set at £135,000 in the draft proposal, later raised to £145,000). This was expected to boost confidence and liquidity at the lower end of the market (Macnab and Peterkin, 2014).

A simpler and better-aligned tax law

Beyond its economic aims, LBTT was deliberately designed to simplify and modernise the legal and administrative framework under which land transactions in Scotland are taxed. The Scottish Government also sought to align LBTT more closely with Scots property law and conveyancing practice than SDLT. One notable instance is the LBTT leases regime: under Scots law, a lease is a contractual arrangement (not an estate in land as in England), which means leases can be more flexibly varied or extended. SDLT rules, built around English law, struggled with such variations and extensions. LBTT remedied this by introducing a system of three-yearly lease reviews and treating lease variations and extensions as continuations subject to the regular review rather than a new lease (Brodies, 2025). A further example, as noted by the then Head of Tax Policy at Revenue Scotland, was that “Scottish Ministers were keen to associate the return and payment of the tax, and registration of title, more closely.” Under the LBTT regime, an electronic tax return must be submitted, and payment (or arrangements for payment) made before an application for title registration can be submitted. By aligning with Scotland’s existing land registration system, this reform was seen as making the tax more efficient and easier to collect (Carvel, 2014).

Prevention of tax avoidance

A driver of LBTT’s design was a robust stance against tax avoidance, with the Scottish Government viewing it as an opportunity to eliminate past avoidance practices, and the then Finance Secretary, John Sweeney, noting that they “do not intend to replicate in taxes that are devolved to Scotland rules and reliefs that have led to avoidance activity.” Crucially, the LBTT framework was accompanied by a Scottish General Anti-Avoidance Rule (GAAR) – a more stringent measure than the UK-wide GAAR in that it targets any artificial tax avoidance^[7] and not only the most abusive arrangements (Scottish Government, 2022a). In addition to the GAAR, the LBTT bill included Targeted Anti-Avoidance Rules, which mirror the approach in England and Northern Ireland, but notably did not replicate the complex UK Finance Act 2003 Section 75A (an SDLT anti-avoidance rule that many practitioners found opaque) (Scottish Parliament, 2013).

A key legislative choice towards anti-avoidance was the decision not to include SDLT’s sub-sale relief in the LBTT bill, which the Scottish Government described as “a gateway to a significant amount of avoidance activity.” While acknowledging that HM Treasury was already moving to curb sub-sale avoidance in 2012, the then Finance Secretary sought to go further by not offering any kind of sub-sale relief, explaining that “[t]o do so would open up a significant risk of giving scope to tax avoiders who are intent on reducing their tax burden” (Scottish Parliament, 2013). The Scottish Government did eventually introduce a sub-sale relief, but in the form of a targeted relief only for the first buyer (the intermediate purchaser) and only where significant development is expected to take place within five years – a significantly narrower policy than the SDLT analogue (Scottish Government, 2015a).