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Tax matters

Taxes on your property

Our specialist tax team can help with taxes on your property

When buying and selling property, there are many things to consider.  One thing that is often left until the last minute (or forgotten altogether) is tax. 

LBTT

LBTT (Land and Buildings Transaction Tax) replaced Stamp Duty Land Tax (SDLT) in Scotland on 1st April 2015. The structure of LBTT is designed so that the charge is more proportionate to the actual price of the property. The percentage rate for each band in LBTT is applied only to the part of the price over the relevant threshold and up to the next threshold falling within the bands below: 

Purchase price

 LBTT rate

Up to £145,000

    0%

Above £145,000 to £250,000

    2%

Above £250,000 to £325,000

    5%

Above £325,000 to £750,000

    10% 

Over £750,000

    12%

 

Capital Gains tax

In some cases it is appropriate to plan ahead and consider capital gains tax (CGT) as well.  If the property is to be your main residence then it will usually be exempt from CGT on an eventual sale due to the tax relief on disposal of your principal private residence (PPR).  PPR exemption generally applies for periods during which you owned and occupied the property.  If you lived elsewhere during part of your ownership period, this can affect the availability of PPR relief on sale.  It is therefore helpful to keep accurate records of any periods of non-occupation.

Buying a second home?

If you are purchasing an additional home, discuss with your solicitor what your plans are for the property.  Is this property for personal use, such that you have two homes and need to consider which one should be elected as your main residence for the purposes of PPR relief? Is it to be a holiday home for your sole use or use by friends and family?  Is it to be let out to residential tenants?  Is it to be a furnished holiday let? Is it for business use?  The tax implications are different in all these scenarios and it is worth having a full discussion about this at an early stage.

Gifting your property

Capital gains tax may also apply if you are gifting your property to a “connected party” (usually a close family member).  A deemed market value is used to calculate the gain instead of actual sale proceeds.  It is helpful to keep records of any capital improvement expenditure as this can be used to reduce CGT liabilities at a later date.  Capital improvements go beyond repairs and maintenance to actually increasing the value of the property.  If you are selling at a loss, make sure you claim the loss in the relevant tax year for CGT purposes as a tax loss can be offset against other gains to reduce your overall liability to CGT.  

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