Land and Buildings Transaction Tax: review

Conclusions and Policy Recommendations

This review has examined five key aspects of LBTT through comprehensive desk-based analysis and extensive stakeholder engagement. The evidence reveals a tax system that 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.

Stakeholder perspectives varied considerably across the areas examined, reflecting different interests, experiences, and policy priorities. This diversity of views underscores the complexity of property taxation policy and the challenges of balancing multiple objectives – revenue generation, economic support, housing affordability, environmental sustainability, and social equity – within a single tax framework. Moreover, literature such as Gibb and Leishman (2025) argues that distortions in the housing market are exacerbated by frequent changes to rates and reliefs, suggesting that further modifications to the current LBTT should be pursued only where there is a particularly strong case. A further consideration is that policy outcomes associated with behavioural changes are likely to be less efficiently delivered through a tax that is designed to generate revenue than a targeted programme (e.g., cash grants for clean heating). The policy recommendations that follow from this evidence synthesis aim to address identified issues while recognising these inherent tensions and trade-offs.

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

We do not believe there to be a sufficient case for modifying the mixed property rule. Evidence from this review indicates relatively limited use of the mixed property rule among stakeholders, with only 24% of individual investors in the survey aware of it. Stakeholder feedback on the mixed property rule varied, with some defending it as maintaining simplicity while others noted potential for abuse.

We recommend that the Scottish Government take forward targeted research to examine the feasibility and implications of apportionment approaches for mixed-use properties. This research should assess:

• The administrative burden of apportionment for both taxpayers and Revenue Scotland, recognising that comparable processes already exist in Additional Dwelling Supplement (ADS) calculations.
• The extent to which current arrangements create opportunities for avoidance through artificial structuring of transactions.
• The revenue and distributional implications of moving to an apportionment system.
• International and domestic precedents for property tax apportionment in comparable jurisdictions.

While stakeholder support exists for an apportionment approach that would tax the residential element at residential rates and the non-residential element at non-residential rates, the case for reform is not sufficiently strong to justify immediate action, given the relatively low utilisation of the current relief and generally mixed stakeholder sentiment. The recommended research would provide an evidence base for future policy development if concerns about avoidance or fairness intensify.

Additionally, the Scottish Government should work with Revenue Scotland to improve guidance on the residential versus non-residential classification. Legal professionals highlighted significant ambiguity in determining boundaries between residential and non-residential classifications, reporting considerable time spent establishing appropriate classifications. Stakeholders noted inconsistencies between Revenue Scotland and HMRC guidance despite often identical underlying legislation.

2. Recommendation 2: Retain multiple dwellings relief (MDR) in its current form

MDR should be retained without modification. The relief ensures that multiple dwelling transactions are not taxed at inappropriately high bands when the same dwellings purchased individually would attract lower rates, thereby supporting buy-to-let investors and large-scale purchases.

Between 2015/16 and 2024/25, MDR consistently represented a significant share of total LBTT revenue forgone, ranging from 7% to 15% of all foregone revenue. Survey evidence revealed very low awareness among individual investors, with only 21% aware of MDR prior to the survey and only 3% having claimed it. This suggests limited uptake among smaller landlords. However, larger landlords, developers, and investors described MDR as essential for making multi-property transactions financially viable, particularly in build-to-rent and student accommodation developments.

With regards to SDLT’s MDR abolition due to widespread abuse, it should be noted that historic SDLT avoidance issues appear to be legacy problems from its former “slab” system rather than inherent flaws in the relief concept. However, Revenue Scotland should continue monitoring for avoidance activity.

3. Recommendation 3: Conduct research into how the ADS could be more effectively targeted to deter second home ownership whilst mitigating negative impacts on the private rented sector

While a detailed ADS review was outside this study's scope, stakeholder engagement and literature reviewed (e.g., Adam and Phillips, 2025) revealed significant concerns about the ADS’s unintended impact on rental supply and rents. There were also questions as to whether the ADS should distinguish between second homes and buy-to-let properties in order to deter second homes, whilst reducing potential negative impacts on the rental market. Recognising that Scotland already gives local authorities the power to charge a council tax premium on second homes, a further policy option to this effect may be for the ADS to be applied to second and holiday homes and to offer an exemption or lower rate for properties intended for long-term rentals.

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

The Scottish Government should maintain the six-dwelling threshold, recognising that it successfully encourages large-scale investment in the residential and private rented sectors, as noted by multiple stakeholders. In recent years, this relief accounted for approximately 3-4% of total LBTT revenue forgone. The overall implication is that the current threshold balances support for institutional investment with revenue generation objectives. Furthermore, consistent evidence of "bunching" behaviour around the threshold was not reported by legal professionals.

However, noting that several smaller landlords and estate agents viewed the relief as unfairly benefiting large landlords and institutional investors, we also recommended a periodic review of the threshold. These stakeholders mentioned that the vast majority of Scottish landlords own only one or two additional properties, making the relief largely irrelevant to them. Concerns were raised about the potential concentration of property ownership and the exacerbation of wealth inequality.

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

We recommend reviewing the precise fiscal implications of updating the current first-time buyer threshold to increase the relevance of the policy. The overall conclusion from the research is that the relief, as it currently stands, is "withering on the vine" through fiscal drag; the threshold has remained static (except during the COVID-19 pandemic) since the relief’s introduction in 2018, while house prices have increased substantially. In addition, the impact analysis, although not causal, did not find clear evidence that the first-time buyer relief had a significant effect on first-time buyer transactions even when it was first introduced.

This view was echoed in the stakeholder engagement, where it was perceived as welcome but largely ineffective. Among recent first-time buyers, only 26% felt it had influenced their actual decision. It was also noted that regional variation means the relief is more effective in some areas (e.g., Fife, with average prices around £150,000) than others (Edinburgh, around £220,000). In view of this, one option is to explore setting different thresholds for different local authority areas or regions (e.g., based on their median first-time buyer purchase prices).

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

LBTT is a transaction tax that only affects people at the point of property purchase – an infrequent, irregular event. Effective Net Zero policy requires regular, ongoing incentives that influence behaviour consistently over time, not just at isolated moments of property transaction. As such, we recommend focusing resources on expanding and improving grants, loans, building regulations, and sector-specific requirements that provide regular, ongoing incentives for energy efficiency.

Stakeholder evidence highlighted potential for significant unintended consequences from linking LBTT to Net Zero objectives and noted that the administrative complexity and costs could be substantial. Contributors to this research cited the following as proposed or existing policies that may be better suited to supporting Scotland’s Net Zero objectives: 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.