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  • Tax

    LBTT 4% Exempt ?

    LBTT (Land and Building Transaction Tax) being now at 4% in Scotland for additional dwellings, I wonder about the tax position if you have no property, get gifted a residential property,

    https://www.revenue.scot/land-buildings-...2/lbtt3003

    and then try to buy another property when the gifted property is not your principle residence.

    Can you still nominate the second bought property as your primary residence ?

    Only 2 properties in this question, and no main principle residence in my name, as I have lived outside UK half my life now.

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    Purpose being of course to not get hit with 4% LBTT/ADS ( the equivalent of the English prop. tax.) on either prop.

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    SUnfortunately LBTT is similar to SDLT. You are purchasing a residential property and already own a residential property. This will be caught by the additional rate unless you sell your main home (or one from the last 18 months) within 30 days and if sold within 18months you can reclaim the excess LBTT. In Scotland you are also caught if you gift to your other property to a non-spousal co-habitee. Sorry.

    Your options are to pay it or seek to avoid it but we need more detail to see if the exemptions apply.

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    Chartered Accountant, Tax Advisor and Mortgage broker

    (and BTL portfolio owner)

    stuart@johnsonsca.com

    02039077022

    Ok, so receiving a gifted property is best to get after buying a main residence (as I currently own no property in UK)....then I think that way LBBT/ADS will be avoided ?

    As gifting seems to be one of the 4% exempt classes in the below clause link regardless of owning residential property already.

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    OK J. Stuart you said "In Scotland you are also caught if you gift to your other property to a non-spousal co-habitee. Sorry." which touches upon gifting between connected people though I was a bit confused if it is exactly relevant to a mother gifting to her son.

    The gift of the main residence would be from mother to son later, and from what has been said it looks like best to buy a property before receiving the family property as a gift.

    Value is currently at market peak, so any value is locked in at gift date regarding future CGT which I can live with, as long as I'm not mistaken that a family gifted residence which I will not be living in attracts no LBTT/ADS, when you have already bought and nominated a principle residence in advance of the gift.

    Though the gifted prop would be taken into account for any purchased additional dwellings LBTT after that gifting point, but already owing a primary residence in advance, and holding that one long-term, the point is moot.

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    I was quoted the following on the status for up-front taxes on gifted property in Scotland by the revenue service (highlighting by myself). They would not answer yes or no to my question, but can only quote existing use case scenarios as beyond that it could be construed as personal advice and buyers are responsible for submitting the status of the transaction...(So, in Scotland anyway..........):-

    "Transactions involving no chargeable consideration are exempt from LBTT and ADS.  If no money is being paid for the property and no debt assumed, ADS will not apply.  Further information on chargeable consideration can be found in our guidance at LBTT3003."

    and from that quote above, and my unique case, a PPR should be bought before receiving gifted property to avoid all LBTT/ADS on the 2 props in question.

    Edit : However I'm seeing this in LBTT3003 - though it would not be in a company structure, it seems to allude to "connected persons"

    "This exemption does not apply where the buyer is a company and either the seller (whether an individual or company) is connected with the buyer or some or all of the consideration consists of the issue or transfer of shares in a company with which the seller is connected.

    I think this was what J Stuart was alluding to, but sorry, I could not be sure 100% if you were meaning familial gifts will not be exempt from LBTT/ADS as maybe my initial post was not clear to you about the structuring. (Hope you could reply again J. Stuart)

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    You are mixing up CGT and LBTT.

    Electing a principle residence is for CGT and relief for one's home. That relief won't apply to you as you are living outside the UK. Similar concept but different defined with different words so slightly different meaning.

    You get relief from additional LBTT if you sell a residence (within 30 days) which has been your main residence during the last 18 months (for SDLT is 36 months). It is not a matter of an election but a matter of fact. In your case its not your main residence so you cannot get relief.

    However unless a company is involved (or a mortgage on the property) a gift will be deemed to be at a consideration of £nil. If there is a mortgage on the gifted property and you own another home (anywhere in the world), then the additional rate may apply (the threshold is £40k).

    Assuming you don't have any other property worldwide, the issue is that you receive the gift and then buy another property. You need to sell the gifted property within 18 months of buying the second property and then its CGT (an a nil base cost - so better if the donor sells and gifts the proceeds). I suggest you receive the gift once you have acquired the second property (ie buy the second property first if that makes sense).

    If you already own another property anywhere in the world then the gift would be at the higher of mortgage o/s and nil and if over £40k then additional rate would apply. AND the second property will be subject to the additional LBTT 4%

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    Chartered Accountant, Tax Advisor and Mortgage broker

    (and BTL portfolio owner)

    stuart@johnsonsca.com

    02039077022


    Ok, thanks for clairfying on CGT as the reason to elect PPR....(I also own no property overseas or in the UK.)

    I will be moving back to the UK this summer I hope and buying a PPR (first-time buyer -Nil LBBT) outright in UK savings cash first....

    The parental property was then going to be gifted in the near future (paid in full/no outstanding mortgage, value over 40k) to me as an individual...and as I read the LBTT3003 Exemptiions guidance 

    "Transactions involving no chargeable consideration are exempt from LBTT and ADS.  If no money is being paid for the property and no debt assumed, ADS will not apply.  Further information on chargeable consideration can be found in our guidance at LBTT3003."

    So I think I'm clear on any LBTT and/or ADS on these 2 properties with the sequence of PPR purchase (and UK residency resumed) and the 2nd residence received as a gift.

    That was my hopeful end goal.

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