Land and Buildings Transaction Tax: review

Alignment with Net Zero and Just Transition

Summary

This is a summary of our analysis of LBTT’s alignment with Scotland’s Net Zero and Just Transition objectives.

Objectives:

• 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 (Scottish Government, 2025a).

Current alignment of reliefs and mechanisms:

• Non-residential/mixed: By taxing non-residential/mixed-use property at lower rates, the system arguably incentivises or eases investment in commercial property, agriculture, and mixed land uses, which could align with Net Zero goals in certain cases (e.g., making it cheaper for a conservation organisation to buy a piece of land for rewilding). But it could also work against the climate or just the outcomes. For instance, Scotland has seen the rise of so-called “green lairds” – wealthy companies buying vast estates for carbon offsetting or forestry, which can price out local communities and concentrate land ownership (Macfarlane and Brett, 2022; Community Land Scotland, 2024).
• MDR and 6+ dwellings ADS exemption: By reducing tax on multiple residential purchases, these reliefs can encourage big projects, which incorporate green technology. At the same time, they strongly favour large investors, potentially concentrating ownership and working against Just Transition principles of community empowerment (Macfarlane and Brett, 2022).
• ADS: By heavily taxing the purchase of second homes and investment residential properties, the ADS may promote year-round occupancy and ease pressure to build additional dwellings, which has a potential carbon benefit. However, it risks pushing costs onto renters and could lead to greater travel emissions generated in travelling to a second home (Adam and Phillips, 2025).
• First-time buyer relief: It promotes home ownership among younger/lower-income households and may indirectly encourage retrofits (since owner-occupiers have stronger incentives than landlords). However, it does little to favour low-carbon homes, given that a first-time buyer gets the tax saving even if purchasing a poorly insulated, high-emission property.

Comparative analysis:

• Scotland’s LBTT, England and Northern Ireland’s SDLT, and Wales’s LTT do not incorporate explicit climate-related incentives or penalties.
• The UK experimented with a zero-carbon homes SDLT relief from 2007-2012, which granted a full SDLT exemption on the first acquisition of a newly constructed home that met stringent emissions standards, but it was discontinued (UK Government, 2007).
• Stakeholders in Wales have suggested the possibility of variable LTT rates tied to energy efficiency or an LTT rebate for retrofits, but no policy decision has been made (Jofeh, 2022).

Findings from stakeholder engagement:

• 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 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. Overall, while LBTT could provide some support, many felt it should be part of a broader toolkit rather than the principal mechanism for encouraging energy efficiency and decarbonisation.

Objectives

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 (Scottish Government, 2025a). In this section, we assess the degree to which LBTT reliefs and mechanisms that have been the focus of previous sections align with Scotland’s Net Zero objectives and principles of a Just Transition. This involves examining whether these tax policies encourage environmentally sustainable outcomes (like energy efficiency, optimal land use, and reduced carbon emissions) and whether they promote fairness in the context of structural changes (for example, housing affordability and community wellbeing, which are part of a Just Transition in housing). Below we summarise Scotland’s Just Transition objectives, as published by the Scottish Government in response to the Just Transition Commission.

Scotland’s Just Transition objectives

“Citizens, communities, and place: Support affected regions by empowering and invigorating communities and strengthening local economies.”

“Jobs, skills, and education: Equip people with the skills, education, and retraining required to support retention and creation of access to green, fair, and high-value work.”

“Fair distribution of costs and benefits: Address existing economic and social inequality by sharing the benefits of climate action widely, while ensuring that the costs are distributed on the basis of ability to pay.”

“Business and economy: Support a strong, dynamic, and productive economy, which creates wealth and high-quality employment across Scotland, upholds the UN Guiding Principles on Business and Human Rights, and continues to make Scotland a great place to do business.”

“Adaptation and resilience: Identify key risks from climate change and set out actions to build resilience to these risks, ensuring our economy is flexible, adaptable, and responsive to the changing climate.”

“Environmental protection and restoration: Commit to act within our planetary boundaries while protecting and restoring our natural environment.”

“Decarbonisation and efficiencies: Contribute to resource efficient and sustainable economic approaches that actively encourage decarbonisation, support low-carbon investment and infrastructure, and avoid carbon ‘lock-in’.”

“Further equality and human rights implementation and preventing new inequalities from arising: Address fuel poverty and child poverty in a manner consistent with Scotland’s statutory targets on each, while furthering wider equality and human rights across all protected characteristics.”

Source: Scottish Government (2021a)

Current alignment of reliefs and mechanisms

Non-residential and mixed-use properties

Although not an explicit aim of the policy, LBTT’s treatment of non-residential and mixed-use property could have indirect implications for land use and climate objectives. By taxing non-residential transactions at lower rates and excluding them from the ADS, the system arguably incentivises or at least eases investment in commercial property, agriculture, and mixed land uses. This might align with Net Zero goals in certain cases – for instance, making it cheaper for a conservation organisation to buy a piece of land for rewilding or peatland restoration (since that would be a non-residential transaction) as compared to if that land had a dwelling on it and is treated as a residential transaction. Similarly, a business purchasing property for renewable energy projects (wind/solar farms) benefits from the non-residential LBTT structure, leaving more capital to invest in the project itself.

However, there are also scenarios where the more favourable non-residential rate structure could work against climate or just outcomes. One concern in Scotland has been the rise of so-called “green lairds” – wealthy companies buying vast estates for carbon offsetting or forestry. While this may support climate goals in principle, it can price out local communities and concentrate land ownership. Under LBTT, large land acquisitions for non-residential purposes are not penalised, being exempt from the ADS and taxed at non-residential bands, which are capped at 5% on the portion above £250,000. In view of this, Community Land Scotland has proposed a sliding-scale tax on land purchases above certain hectare thresholds, with punitive rates for very large aggregate holdings, explicitly citing the ADS on second homes as a model (Macfarlane and Brett, 2022; Community Land Scotland, 2024). As of now, no such supplement exists.

A further point is that the mixed-use classification in LBTT can sometimes encourage keeping or incorporating a non-residential element in a property deal, which can have mixed climate implications. On the one hand, encouraging mixed-use developments (e.g., ground-floor commercial with flats above) is often seen as sustainable urban planning – it reduces travel needs and land take. LBTT’s relatively favourable treatment of mixed-use property could somewhat support the viability of such projects. On the other hand, some may take advantage of these provisions to classify a largely residential purchase as mixed-use by including a token non-residential component. If this component took the form of acquiring a piece of farmland with a home, it might result in that land remaining underutilised rather than sold separately to someone who would actively farm or reforest it. Such distortions are likely minor, but they show the importance of clearly aligning tax rules with desired land outcomes.

MDR

The MDR is largely an economically driven relief intended to avoid penalising bulk housing purchases. Its Net Zero or Just Transition alignment is not obvious at first glance, but there are some points to consider. Notably, by reducing the tax burden on acquiring multiple homes, the MDR can encourage developers to take on projects that add housing units or refurbish several units at once. This could be a positive for sustainable communities if it leads to the rejuvenation of derelict properties or the creation of denser housing (multiple flats where perhaps one big house stood). Denser housing may be more energy-efficient (e.g., due to shared walls) and could support walkable communities, aligning with lower-carbon living.

The MDR might also facilitate institutional landlords or councils (notably Registered Social Landlords) to buy portfolios of homes for rental or social housing in cases where other tax reliefs for the provision of affordable housing do not apply. If a housing association can buy ten flats at a lower tax cost, that saving could be invested in improving those flats (e.g., updating heating systems and insulation). It is also worth noting that a block of ten flats under one owner is easier for planning a retrofit (like installing modern heating for the whole block) than ten individual owners coordinating. In that sense, MDR might enable better-quality, energy-efficient renovations by freeing up capital and supporting systematic upgrades. However, it should be noted that the MDR in its current form has no link to energy or emissions performance; an investor gets the relief whether they plan to eco-renovate the dwellings or not. Introducing such a condition may help to better align incentives with Scotland’s Net Zero objectives, but may be difficult to enforce, given that the LBTT is an event-based tax.

The MDR may also raise some concerns in a Just Transition context. Coupled with the 6+ dwellings ADS exemption rule, it creates a situation where large property investors pay proportionally less tax than small ones. This could be viewed as regressive within the housing sector – a small landlord buying two flats gets a bit of relief via the MDR, but still pays ADS on both, whereas a big fund buying 50 flats would pay no ADS and benefit from a lower effective LBTT rate per flat. This preferential treatment for scale might concentrate ownership and potentially drive up prices for first-time buyers if big investors compete for the same stock. A Just Transition would ideally empower communities and local economies, in line with the notion of community wealth building, which seeks to redirect wealth back into local communities (Macfarlane and Brett, 2022).

ADS and 6+ dwellings exemption

The ADS, though conceived as a housing policy, has some clear intersections with climate and Just Transition considerations. By heavily taxing the purchase of second homes and investment residential properties, the ADS can, in principle, promote fuller year-round occupancy and ease pressure to build additional dwellings. This has a potential carbon benefit because the construction of a new home carries substantial embodied carbon – up to ~800 kg CO₂e per m², implying tens of tonnes of CO₂e per typical dwelling (Low Energy Transformation Initiative, 2020). Fewer additional dwellings required at the margin may therefore imply lower embodied-carbon demand, other things equal.

Furthermore, the ADS is a highly material revenue stream within the broader LBTT, generating £257.8 million in revenue in 2024/25. This accounted for roughly 27% of total LBTT revenues that year (Revenue Scotland, 2025h). The Scottish Fiscal Commission have also estimated that the rise in the ADS rate from 6% to 8% in 2024 would generate an additional £32 million in 2025-26 (Scottish Fiscal Commission, 2025). Revenues from the ADS are not hypothecated, but nevertheless they increase fiscal space for priorities, such as affordable housing or climate programmes.

A less clear benefit is the potential for reduced discretionary travel to and forth from second homes via surface transport. Surface transport is currently the UK’s highest emitting sector (Climate Change Committee, 2025). While the contribution of travel to second homes to current emissions could conceivably be significant, it is also possible that households deterred from buying a second home would still take the same number of trips to, for example, reside in rental stays, potentially making up or even exceeding the travel emissions they would have generated in travelling to a second home. It is also worth noting that the stock of second homes has declined markedly since the early 2010s; therefore, travel to these properties is unlikely to be contributing to rising emissions (Scottish Government, 2025d).

The steep ADS increases in Scotland can also be partly justified on Just Transition grounds. While the explicit rationale has focused on discouraging multiple home ownership to free up housing stock for first-time buyers (see Scottish Parliament, 2025), the policy can also be seen as promoting house ownership by locals and therefore community sustainability. This sits alongside recent council tax changes, which appear to have helped reduce the stock of second homes (Scottish Government, 2025d), further supporting the Scottish Government’s Just Transition objective of “citizens, communities, and place” (see Box 2) and the resulting emphasis on “living locally” in the Scottish Government’s National Planning Framework 4 (Scottish Government, 2021a; Scottish Government, 2023b).

However, the ADS and its recent rate increases can also be seen as undermining the Scottish Government’s “citizens, communities, and place” and “fair distribution of costs and benefits” objectives if renters face higher rents because of the increased cost to landlords. This poses a distributional risk whereby some of the tax burden may inadvertently fall on lower-income households that are substantially renters. Indeed, this argument is made by the IFS in their criticism of the 2024 rate increase (Adam and Phillips, 2025). It should be noted that the existence of the 6+ dwellings ADS exemption may limit the impact on renters somewhat by sparing larger-scale rental providers, pushing the tax onto smaller landlords and second homeowners instead.

The full relief from ADS and use of non-residential rates for 6+ dwelling transactions was not designed with climate objectives in mind, but it does have significant ramifications, which mirror those of the MDR. In particular, by making large residential acquisitions cheaper, the 6+ dwellings ADS exemption encourages institutional investors, developers, and social landlords to undertake big projects, which may incorporate green technology more readily. It may also facilitate institutional landlords or councils buying portfolios of homes for rental or social housing, thereby supporting Just Transition objectives. At the same time, by encouraging concentrated ownership, the 6+ dwellings ADS exemption may also undermine Just Transition objectives of community empowerment.

First-time buyer relief

First-time buyer relief is fundamentally a social policy lever, not an environmental one, with its purpose to help new buyers get on the property ladder by reducing upfront tax costs. In terms of alignment with Just Transition principles, one could argue that the first-time buyer relief supports intergenerational equity and social justice by aiding younger and less wealthy households to own a home. In addition, owner-occupiers generally have more incentive to retrofit for energy efficiency (to reduce bills and improve comfort) than landlords might. Thus, indirectly, first-time buyer relief could result in more houses being potentially upgraded, although this is speculative and likely marginal in our view.

From a Net Zero perspective, one could critique that the first-time buyer relief (and indeed LBTT as a whole) does little to favour low-carbon homes, given a first-time buyer gets the tax saving even if purchasing a poorly insulated, high-emission property, and there is no direct incentive to upgrade the property’s efficiency. As with the MDR, introducing a link between the relief and energy or emissions performance could result in better alignment with Net Zero objectives. However, this could potentially lead to unjust outcomes if separate financial support were not made available to support first-time buyers undertaking the needed upgrades.

Comparative analysis

This section presents a comparative analysis of LBTT’s alignment with Net Zero and Just Transition goals in Scotland, vis-à-vis SDLT in England and Northern Ireland, and LTT in Wales.

Key differences between LBTT and SDLT

As of 2025, LBTT is not explicitly tied to climate or energy efficiency objectives – it is based purely on the price and property type, as well as considerations regarding the nature of the transaction, but with no adjustments for whether a building has net zero carbon features. The same is presently true in England and Northern Ireland: SDLT does not vary by a property’s Energy Performance Certificate (EPC) rating or carbon footprint. However, the UK did experiment with a zero-carbon homes SDLT relief from 2007-2012, which granted full SDLT exemption on the first acquisition of a newly constructed home meeting stringent emissions standards (a “zero-carbon home”) up to a purchase price of £500,000. For first purchases of a zero-carbon home with a price more than £500,000, the relief was a £15,000 reduction in the buyer’s SDLT bill (UK Government, 2007). However, the relief was discontinued after September 2012 as few qualifying transactions occurred and its design led to tax revenue losses on any uptake (UK Parliament, 2019). Such a relief has never been mirrored in Scotland under LBTT.

There have since been calls to revive such incentives. For example, a report to the UK Government by the Green Finance Taskforce recommended piloting a scheme to link SDLT rates to energy efficiency – effectively a green adjustment to stamp duty – which was subsequently endorsed by the House of Commons’ Environmental Audit Committee (Green Finance Taskforce, 2018; House of Commons, 2021). Likewise, industry groups such as the UK Green Building Council have proposed a low-energy adjustment to SDLT designed to incentivise buyers to improve their home’s energy performance in the first two years since purchase (UK Green Building Council, 2021). As of now, however, these ideas remain at the proposal stage.

Scotland’s Just Transition agenda has not yet been reflected in LBTT policy in an explicit way, but one area where LBTT potentially intersects with a Just Transition is in its treatment of second homes, which are actively discouraged through the ADS. However, as mentioned, this policy may inadvertently exacerbate inequalities if landlords pass on the additional tax cost to renters, as cautioned by the IFS (Adam and Phillips, 2025). A recent SDLT change, which mirrors the ADS rate increases, and its potential Just Transition implications are the increased rates on additional dwellings (raised to five percentage points above main rates in 2024), which shares a stated objective of freeing up stock for main home and first-time buyers (HM Revenue & Customs, 2024).

Key differences between LBTT and LTT

Neither Scotland’s LBTT nor Wales’s LTT presently incorporates explicit climate-related incentives or penalties, and both have so far only tangential connections to their governments’ Net Zero and Just Transition agendas. The Welsh Government’s current Carbon Budget does not mention LTT as a tool for driving emissions reductions in buildings, emphasising building standards and retrofit programmes instead (Welsh Government, 2021b). Similarly, as discussed, Scotland’s LBTT has no scheme linking tax to environmental performance. There have been ideas floating in both countries: for example, stakeholders in Wales have suggested the possibility of variable LTT rates tied to energy efficiency or an LTT rebate for retrofits, thereby incentivising energy improvements at the point of sale (Jofeh, 2022).

Where there may be some degree of (indirect) alignment is in a Just Transition context with the social equity dimension of these taxes. Both Scotland and Wales structured their property taxes to be more progressive than pre-devolution SDLT, aiming to make the overall system fairer (Office for Budget Responsibility, 2024). Furthermore, the additional dwelling supplement in both countries can be seen as tools to curb speculative investment that drives up prices for locals, thereby promoting the social sustainability of communities. However, as noted previously, such an increase in tax rates can exacerbate inequality if the additional tax cost is passed on to renters (Adam and Phillips, 2025).

Findings from stakeholder engagement

Summary of findings

Stakeholders broadly agreed that improving Scotland’s housing energy performance is crucial for achieving Net Zero, but opinions differed on whether LBTT would be an effective tool to support this goal. Supporters argued that LBTT could incentivise greener homes by linking tax rates to a property’s EPC rating or by offering rebates for post-purchase upgrades. Such measures could prompt buyers to invest in energy-efficient renovations or install clean heating systems like heat pumps at the time of purchase. Some stakeholders believed that linking LBTT to energy performance could stimulate retrofit markets, create local jobs, and support a fairer Just Transition by encouraging wealthier homeowners to invest more. However, opponents warned of unintended consequences, such as penalising older buildings, distorting the housing market, and overcomplicating the tax system. Many questioned the reliability of EPC ratings and doubted that LBTT incentives would meaningfully change behaviour. Others suggested alternative mechanisms, such as grants, VAT reductions on green improvements, or existing retrofit schemes, as more effective ways to drive decarbonisation.

How can LBTT support Net Zero goals?

Stakeholders generally agreed that many people in Scotland currently live in homes with relatively poor energy efficiency and that improving the housing stock’s energy performance was an essential long-term goal. Most felt that the existing LBTT was not a source of influence on environmental objectives in either direction; however, some observed that funds spent on LBTT could otherwise be used by the taxpayer to improve the energy efficiency of homes. Opinions were divided on whether LBTT could serve as an effective policy lever for achieving the Scottish Government’s net zero ambitions.

Use of LBTT to support Net Zero and Just Transition objectives

Among those in favour, several stakeholders proposed ways in which LBTT could contribute to Scotland’s environmental goals, particularly by incentivising improvements in home energy efficiency and promoting the switch to clean heating systems, such as heat pumps and electric boilers. A number of participants viewed LBTT as a potentially effective means to encourage property owners to act. As a point-of-purchase tax, it targets people when they are making major investment decisions about their homes, which was noted as an ideal moment to prompt consideration of energy upgrades. Newly purchased properties are often renovated for aesthetic or functional reasons, making this a practical stage to incorporate upgrades, such as underfloor insulation or low-carbon heating. Some also noted that buyers typically have access to mortgage finance, which could facilitate such improvements. One interview participant also emphasised that using the tax as a behavioural nudge would be less politically polarising than more coercive measures, such as prohibitions or mandatory upgrades. They also observed that achieving net zero requires not only government investment but active participation from homeowners.

Incentive to increase the energy efficiency of buildings

Many stakeholders, particularly those involved in Net Zero and the Just Transition, supported linking LBTT rates to a property’s EPC rating. The EPC rating assesses features such as insulation, heating systems, windows, and lighting to estimate a building’s energy efficiency. It provides both a numerical score and a band ranging from A (most efficient) to G (least efficient). Under this proposal, properties with higher EPC ratings could attract lower LBTT rates, while less efficient buildings might face higher rates. The adjustment could either be structured by EPC band (for example, a 2% reduction for properties in band A) or scaled continuously according to the numerical rating.

Stakeholders suggested that linking LBTT rates to energy performance could incentivise the construction of greener homes and encourage existing homeowners to invest in energy-efficient upgrades. To maintain fiscal neutrality, higher rates on less efficient properties could offset reductions for those performing better. Over time, the neutral point, where homes above it pay less tax, and those below pay more, could gradually rise as the housing stock becomes more energy efficient. Even if designed to be revenue-neutral, stakeholders believed such a reform could still generate wider economic benefits. These include stimulating local markets, supporting small businesses, and creating jobs in the building and retrofit sectors. Encouraging people to move into more efficient homes could also free up larger properties for other families, reduce government spending on winter fuel payments, and help create a more dynamic, liquid housing market.

Several stakeholders also proposed that, in addition to or as an alternative approach, LBTT could be used to incentivise improvements in a property’s energy efficiency. This could be achieved through lower rates of LBTT or a rebate for new homeowners who commit to carrying out energy efficiency upgrades within a defined period after purchase, for example, within two years. The improvements could be tracked through changes in the property’s EPC rating, with a post-upgrade rating compared to the initial assessment. Some stakeholders favoured this approach as it would not only reward the purchase of energy-efficient homes but also encourage the retrofitting and upgrading of existing housing stock. One landlord commented that such a scheme could motivate them to acquire neglected properties and bring them back up to standard. Another stakeholder added that improving energy performance could also enhance property values, creating incentives for both sellers and buyers.

Some stakeholders also highlighted the potential benefits of utilising EPC ratings as a measure of efficiency. They noted that EPCs are an established measure already used to help property owners assess the energy performance of their buildings, making it a clear and tangible indicator for any tax adjustment. One organisation working in the net-zero space further observed that an EPC-based approach would be technologically neutral, as it would not require the government to promote specific technologies or retrofit options. Property owners could therefore choose the most suitable interventions, such as upgrading lighting, improving windows, installing solar panels, fitting a heat pump, or undertaking other measures that enhance their EPC rating. However, stakeholders acknowledged that exemptions or adjustments might be necessary for certain property types. This could include listed buildings, or homes built before 1919, where improving energy efficiency is particularly challenging, as well as apartments where a lack of outdoor space can make the installation of some technologies, such as heat pumps, impractical.

Incentive to install clean heating

Another organisation working in the green energy space suggested that, rather than linking LBTT to a property’s EPC rating or overall energy efficiency, it would be more effective to tie it to the installation of clean heating systems, such as electric boilers and heat pumps. The organisation has previously conducted research on the potential impacts of requiring certain households to install clean heating systems after purchasing a home and noted that this concept could feasibly be integrated with LBTT. Instead of relying on EPC ratings, which can be complex and variable, the proposal would use a straightforward criterion: whether or not a property has clean heating. Clean heating can be defined as “a system capable of providing heat without producing any greenhouse gas emissions at the point of use” (ClimateXChange, 2024). This approach would create a clear distinction between properties with and without clean heating systems and provide a simpler, more transparent incentive to make the switch. The stakeholder also recommended an alternative mechanism whereby recent homebuyers who enter a grant scheme to install a heat pump could receive a £500 rebate on their LBTT liability. The organisation emphasised that the transition to clean heating represents the major current challenge and the area requiring the largest investment, as most homes in Scotland remain heated by gas or oil. They noted that significant decarbonisation gains will come from this shift to clean heat, whereas most homes have already benefited from energy efficiency measures, such as cavity wall and loft insulation.

Alternative uses of LBTT to support Net Zero goals

Several stakeholders proposed alternatives to using EPC ratings, suggesting approaches that focus on specific, verifiable energy improvement measures. One landlord argued that linking tax incentives to demonstrable low-carbon performance, such as solar PV generation with measurable output, would be more effective than relying on EPC ratings, which can be inconsistent.

Another stakeholder referred to past energy performance-related tax reliefs, including the former Zero Carbon Homes Relief under SDLT, which applied to properties achieving zero net carbon emissions from energy use over a year. A further stakeholder argued that, rather than rewarding newer, energy-efficient homes with lower LBTT rates, the policy should instead prioritise older, traditional buildings. They explained that modern developments, though highly energy-efficient, are often constructed on greenfield sites at the edges of towns, indirectly increasing carbon emissions through factors such as car commuting. In contrast, older stone buildings in town centres are expensive and complex to convert under current regulations and applying higher LBTT to such properties would make their reuse even less feasible.

A few stakeholders also suggested that LBTT could more effectively encourage energy performance improvements if it were levied on sellers rather than buyers. This shift could incentivise sellers to upgrade their properties before sale, aligning with the plans of many sellers to upgrade properties prior to selling. They felt this approach would be simpler than introducing a post-transaction rebate initiative, such as that of the ADS. However, not all stakeholders agreed, with some warning that sellers, particularly those under financial pressure, may wish to sell quickly and would be harmed by additional pre-sale requirements.

Just Transition considerations

Stakeholders offered a range of views on how LBTT could support the Scottish Government’s Just Transition ambitions to end Scotland’s contribution to climate change in a fair and inclusive way.

Stakeholders noted that LBTT, if designed to advance Net Zero goals, could align well with the principles of a Just Transition due to its progressive nature. Residential property purchases under £145,000 are currently exempt from LBTT, which protects lower-income buyers from being affected by any rate changes linked to energy performance. Since higher-value properties face proportionally higher tax charges, the system could encourage those buyers who generally have greater means to invest in energy efficiency improvements. Several stakeholders highlighted that LBTT primarily affects homeowners, who are typically better resourced and less likely to experience poverty than the general population.

If higher rates were to apply to less energy-efficient properties, or if buyers were required to make improvements, stakeholders stressed the importance of reliefs and exemptions to protect less affluent households. They suggested that first-time buyers and those purchasing properties at the lower end of the LBTT threshold should be exempt from additional rate increases or investment requirements, given their limited disposable income. However, others stressed that lower-value properties should still be encouraged to improve energy efficiency, suggesting that instead of full exemptions, they could be supported through extended compliance periods and targeted financial assistance.

One stakeholder proposed LBTT reliefs for a wider range of housing types, including temporary and emergency accommodation, as well as homes for victims of domestic abuse. They argued that all forms of affordable housing should be exempt from LBTT, as such developments generate clear social benefits. They also suggested that properties delivering demonstrable social value should not face additional tax burdens, as this would encourage development and improve housing supply.

Financing energy performance improvements emerged as a key concern. Stakeholders underscored the importance of coordinating tax policy with wider Scottish Government energy and retrofit support schemes to enable property owners to fund necessary upgrades. While the long-term savings from improved energy efficiency can eventually offset investment costs, the high upfront expense, for example, typically £12,000 to £15,000 for a heat pump, remains a barrier. Existing support schemes, such as the £7,500 grant and an additional £7,500 interest-free loan available for clean heating installations, were cited as positive examples. However, several contributors raised concerns that current universal grants can be regressive and financially unsustainable if uptake rises sharply. One organisation working on Just Transition policy, therefore, proposed tapering grants according to property value, offering the full grant for the least expensive homes and reducing support for higher-value properties. Another stakeholder also suggested that, within a Just Transition framework, LBTT revenues could be hypothecated to fund community land initiatives. This would help redistribute benefits and ensure that all communities, particularly those less able to invest in net-zero measures, can take part in and benefit from place-based environmental projects.

Nonetheless, some stakeholders questioned the extent to which LBTT can support a Just Transition, as many low-income households do not purchase property. These groups often live in social housing or low-quality private rentals, particularly in rural areas characterised by poor energy efficiency and reliance on expensive heating sources. Others noted that LBTT-based incentives may disproportionately benefit wealthier households, since many lower-value transactions are already exempt from the tax. Stakeholders proposed parallel funding mechanisms to ensure renters and lower-income households receive comparable support to improve energy efficiency. Finally, one respondent cautioned that property value does not always correlate with financial capacity, citing, for instance, older homeowners with valuable properties but limited income, underscoring the need for policies sensitive to cash flow and asset value.

Potential unintended consequences

Whilst some stakeholders supported the potential use of LBTT to advance net zero and just transition objectives, many others strongly opposed the idea, arguing that LBTT was not an appropriate mechanism to achieve environmental goals.

Several stakeholders highlighted the challenges posed by Scotland’s older housing stock, much of which dates from the Victorian and Georgian eras. It was noted that many such properties cannot be easily retrofitted to improve energy efficiency and may never achieve a higher EPC rating. Examples included older buildings where additional insulation may cause dampness or where listed status prevents window replacements with double glazing. Stakeholders were concerned that linking LBTT rates to EPC performance could disadvantage older properties, making them less desirable and further depressing demand for buildings in towns and village centres that are already difficult and expensive to convert under modern building regulations. This could result in more vacant or derelict buildings rather than supporting greater sustainability.

Stakeholders also pointed out that current building standards already require high-energy-efficiency performance in new developments, making further LBTT incentives unnecessary. Differential LBTT rates could, however, increase the desirability, and therefore prices, of new builds while depressing the value of older homes. One stakeholder noted that landlords typically account for energy efficiency upgrades in upfront purchase and rental calculations, so if LBTT were linked to EPC ratings, this could effectively become a “seller tax” for owners of less efficient homes, particularly older ones needing substantial upgrades. Buyers would likely discount offers to reflect additional costs, creating potential bottlenecks in the housing market. Some participants acknowledged that rewarding higher-performing properties could steer buyers toward greener buildings but cautioned that this might inflate prices without shifting behaviour. Others warned that such a policy could increase the costs associated with moving home, slowing overall housing market activity. Other stakeholders expressed similar concerns, noting that owners of non-residential properties already face significant pressure due to energy-efficiency regulations. Imposing further LBTT-linked restrictions could add to these challenges. Regional disparities were also highlighted since cities such as Edinburgh and Glasgow tend to have more energy-efficient building stock compared with rural areas. LBTT exemptions for high-EPC properties could therefore concentrate investment in urban centres and widen existing regional inequalities.

Issues related to the just transition and the potential for relief on lower-value properties were raised. It was noted that while buyers of lower-value homes are less likely to have the disposable income needed to install these systems, it is also important to avoid creating incentives that primarily benefit higher-value homes, leaving lower-value properties without clean heating systems or energy-efficiency improvements. Participants also questioned whether the scale of the rebate would be sufficient to drive real behavioural change. Small increases in tax might simply be absorbed as an added cost rather than a meaningful incentive. Many felt that the current financial support already fails to motivate change.

Another question raised was whether any tax changes would actually be sufficient to influence behaviour. If the incentive is too small, most people are likely to absorb the additional tax instead of changing their actions. It was noted that existing financial support mechanisms are already in place but appear inadequate to drive meaningful change. One view was that, given the current levels of LBTT paid, the proposed discount would not differ significantly from the grants currently available and could therefore send only a weak signal. Another lawyer highlighted the challenge of aligning incentives without creating complexity in the tax system, noting that it is often the seller who invests in improving energy efficiency, while the buyer benefits through a reduced LBTT rate.

Several participants raised concerns about the reliability and consistency of EPC ratings. One landlord commented that the EPC system was not a dependable measure of energy performance, explaining that insulation upgrades to a low-rated property made no difference to its EPC score. He also observed that tenants rarely considered EPC ratings when choosing a property. Another stakeholder described EPC assessments as inconsistent, often producing scores that depended more on the individual assessor than on actual improvements. They cited examples where genuine upgrades, such as fitting insulated plasterboard or replacing old double glazing, significantly improved comfort and efficiency but were not reflected in the EPC rating. Others added that EPCs can inadvertently encourage the use of gas heating, even as other policies discourage it. Another stakeholder also emphasised potential risks around misconduct or manipulation in the certification process, highlighting the need for tighter regulation. Finally, participants stressed that EPCs capture only a snapshot in time, often failing to account for low-carbon heating systems and raising concerns about whether small differences between bands could justify significant differences in tax rates.

Questions were also raised about the underlying purpose of the tax. Several stakeholders observed that aligning it with Net Zero ambitions would represent a fundamental shift in its objective, from primarily raising revenue to supporting environmental outcomes. At present, the tax serves mainly as a revenue-raising measure, but this could change if its purpose were reoriented towards achieving Net Zero goals. A stakeholder further noted that if such changes were successful and more homes improved their energy efficiency, tax revenues would likely fall. This would undermine the tax’s existing objective, potentially requiring the government to seek alternative sources of income.

Stakeholders also raised concerns that linking the tax to Net Zero targets could increase its complexity. They argued that introducing an additional factor to determine LBTT owed on a property transaction would make it more difficult to administer. One stakeholder warned of greater administrative burdens and the need for more building surveyors to assess energy performance. Others highlighted the challenges homeowners face with technologies such as heat pumps and solar panels, which can be costly and complicated to install and use. A lawyer also commented on the added compliance burden for Revenue Scotland, noting their view that the agency is already under-resourced relative to its expanding responsibilities as new devolved taxes are introduced.

Several contributors suggested that existing policies and incentives aimed at improving the energy performance of homes are more effective mechanisms than using LBTT for this purpose. These include green mortgage products and lending rules, grants and interest-free loans for home upgrades, manufacturer obligations for boilers, energy performance requirements in the private rented sector, building regulations for new homes, and proposed measures in the Heat in Buildings Bill. One stakeholder also proposed that reducing or removing VAT on sustainable home improvements would be a more direct and effective way to encourage energy-efficient investments.