LBTT is being described as a progressive tax, meaning that each rate of tax is only charged on the part of the price that is within the relevant rate band. This differs from SDLT, often called a slab tax, under which the highest applicable rate of tax is charged on the whole price.
For commercial transactions, the price above which LBTT on a purchase will start to exceed the current SDLT charge is £1.95m. For residential purchases it's anything above £324,280.
Rates and bands for LBTT on acquisitions
LBTT rates and bands for commercial purchases (and premiums for commercial leases) will be:
- up to £150,000 - 0%
- from £150,001 - £350,000 - 3%
- anything over £350,000 - 4.5%
The Scottish Government have provided a calculator for such commercial purchase (and lease premium) LBTT.
LBTT rates and band for residential purchases will be:
- up to £135,000 - 0%
- from £135,001 - £250,000 - 2%
- from £250,000 - £1,000,000 - 10%
- anything over £1,000,000 - 12%
The calculator also covers residential acquisitions.
Rates and bands for LBTT on rent under leases
No LBTT is payable on residential leases.
The same rate and threshold for LBTT apply for commercial leases as apply for SDLT ie 1% of any net present value over £150,000. However, under LBTT the issue is revisited every 3 years - with the tenant being obliged to submit returns every 3 years and LBTT being adjusted if applicable.
LBTT on any commercial lease premium is charged at the same rate as a commercial purchase.
Again, the calculator is available to calculate LBTT on leases.
Commercial property examples comparing LBTT to SDLT
Let's look at a couple of examples, one below and one above the tipping point of £1.95m.
Price of £1m
SDLT is 4% of £1m ie £40,000.
£150,000 - no charge
£200,000 at 3% - £6,000
£650,000 at 4.5% - £29,250
Total LBTT: £35,250 - so a saving of £4,750 on the SDLT charge.
Price of £10m
SDLT is 4% of £10m ie £400,000.
- £150,000 - no charge
- £200,000 at 3% - £6,000
- £9,650,000 at 4.5% - £434,250
Total LBTT: £440,250 - so £40,250 more than the SDLT charge.
Residential property examples comparing LBTT to SDLT
Again, let's look at two examples, one below and one above the residential property tipping point of £324,280.
Price of £240,000
SDLT is 1% of £240,000 ie £2,400
- £135,000 - no charge
- £105,000 at 2% - £2,100
At this price, there is a saving of £300 on the SDLT charge.
Price of £525,000
SDLT is 4% of £525,000 ie £21,000
- £135,000 - no charge
- £115,000 at 2% - £2,300
- £275,000 at 10% - £27,500
Total: £29,800 - so £8,800 more than the SDLT charge.
For more information on LBTT and how it compares with SDLT, please see our inter UK law comparison section on this topic.