Commentary on Sections Paragraph 2 of schedule 2A – Transactions relating to second homes etc.
13.Paragraph 2 is relevant to the standard case where the buyer of a dwelling is an individual or couple. It applies where the subject-matter of a chargeable transaction consists of, or includes, the acquisition of ownership of a dwelling in Scotland. This would cover the standard purchase of a house or flat. “Ownership” in this context will often mean ordinary ownership but an extended meaning of ownership (covering, for example, liferents) is provided in Part 6 (ownership of dwellings). In the particular case of long leases, acquisitions of residential long leases are exempt from LBTT unless the lease is a “qualifying lease” (paragraph 3 of schedule 1 to the 2013 Act).
14.Paragraph 2 only applies if the relevant consideration (defined in paragraph 4, usually the purchase price) for the transaction is £40,000 or more. £40,000 is the notification threshold for acquisitions of the ownership of land under section 30(1)(b) of the 2013 Act. Where a second home in Scotland is bought for the bona fide sum of £35,000 there is no ordinary LBTT payable, nor is any additional tax payable. However, as mentioned, were the relevant consideration £45,000 the additional amount will be payable on the whole of the consideration including the first £40,000 (resulting in a tax charge of £1,350).
15.Paragraph 2 also only applies the additional tax in schedule 2A where at the end of the day that is the effective date of the transaction (the tax point; usually the date of settlement) the buyer owns more than one dwelling and the buyer is not replacing the buyer’s only or main residence. Therefore where the buyer is replacing their only or main residence the additional amount of tax does not apply even though they may own two or more dwellings at the end of the effective date.
16.The meaning of replacing the buyer’s only or main residence is provided in sub-paragraph (2). This requires the buyer to have sold their previous residence within the 18 months preceding the effective date and requires the buyer to intend to occupy the new residence as their only or main residence.
17.In cases where the buyer is replacing their main residence but the subject matter of the transaction involves the purchase of other dwellings, the supplement will be payable on the amount of consideration attributable to those other dwellings. That is, the supplement will be payable on the relevant consideration payable for the chargeable transaction, except for the amount attributable to the buyer’s new main residence. Paragraph 4 contains the rules for attributing consideration when the chargeable transaction involves the purchase of more than one dwelling and one of the dwellings purchased is to be a replacement main residence.
18.In most cases where paragraph 2 applies, the transaction will be a residential property transaction within the meaning of section 24(3) of the 2013 Act(5). However, paragraph 2 potentially also applies in cases where the acquisition of a dwelling is taxed as a non-residential property transaction in terms of section 24(4) (so called “mixed” transactions). Where section 59(8) (the “six plus” rule for purchases of multiple dwellings) applies, paragraph 2 also potentially applies, though relief under paragraph 8A will be available.
19.Where it has not been possible to sell a previous main residence, but that happens within the 18 months following the effective date, paragraph 8 provides that repayment of the additional tax paid may be claimed.
20.Interpretative provisions of the 2013 Act relevant to paragraph 2—
21.“Only or main residence” is not a defined term and in most cases where there are multiple dwellings it will be straightforward to determine which is the main residence, for example where additional residences are clearly holiday homes. Revenue Scotland will publish guidance on the factors it will look to for the smaller number of cases that are less straightforward.