For purchases below 333,000, the LBTT cost is lower than SDLT, but at higher prices LBTT is more.

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1 LAND AND BUILDINGS TRANSACTION TAX On 1 April 2015 Stamp Duty Land Tax (SDLT) ceased to apply to transactions involving land in Scotland and was replaced by the Land and Buildings Transaction Tax (LBTT). LBTT applies wherever the purchaser is based, so long as the land is in Scotland. The Scottish Government has control over the tax base as well as the rates. LBTT is collected by Revenue Scotland, the new Scottish tax authority, working in conjunction with Registers of Scotland. The administrative arrangements for LBTT are different from those which apply to SDLT, for example LBTT has to be paid (or arrangements satisfactory to Revenue Scotland entered into) when the LBTT return is submitted, rather than within 30 days as for SDLT. In addition, LBTT returns are simpler than SDLT returns, and the LBTT online system is more modern and user friendly. Progressive rates for both residential and non-residential purchases LBTT is a progressive tax (like Income Tax) and slices of the price are charged at different rates on both residential and non-residential purchases. Following changes in both the December 2014 Autumn Statement and the 2016 Budget, SDLT now also has progressive rates for residential purchases and non-residential purchases. If VAT is payable on the price, both LBTT and SDLT are payable on the price plus VAT. How much tax will be payable? The current LBTT rates are as follows:- Residential 0% until 145,000 2% between 145,001 and 250,000 5% between 250,001 and 325,000 10% between 325,001 and 750,000 12% on remainder of the price over 750,000 For purchases below 333,000, the LBTT cost is lower than SDLT, but at higher prices LBTT is more. 3% supplement for additional residential properties As a result of changes that came in to force on 1 April 2016 a new LBTT supplement is payable on additional dwellings costing 40,000 or more. The additional dwellings supplement of 3% applies to the whole of the purchase price, and will be payable on purchases of second or subsequent properties by individuals (except where the individual is replacing their main residence) and all purchases of residential property by companies and other non- natural persons. An exemption is in place where a purchaser (individual or a company/non-natural person) purchases 6 or more dwellings as part of the same transaction. The supplement is not chargeable if a contract for the purchase of the dwelling(s) was entered into prior to 28 January 2016, and was not subsequently varied. The rules determining whether the additional dwellings supplement can be complex in some cases, for example, purchases by trusts and partnerships, or some trust beneficiaries. We recommend professional advice is taken in these circumstances.

2 Non-residential (including commercial, agricultural and mixed) 0% until 150,000 3% between 150,001 and 350,000; 4.5% on the remainder of the price over 350,000 Based on these rates, the LBTT on a 70 million purchase of a non-domestic property is 3,140,250 as compared with SDLT at 3,489,500. Generally SDLT on non-residential purchases will exceed LBTT where the price exceeds 300,000. Residential or non-residential? The LBTT rates for commercial, agricultural and other non-residential properties are lower than the residential rates. Following Budget 2016 the commercial rates of SDLT are now much closer to LBTT. Previously, the difference between the residential and non-residential rates was much more pronounced in LBTT than it was in SDLT. Non-residential property includes:- commercial property farms and agricultural property the purchase of 6 or more residential properties student accommodation, care homes and similar buildings purchases of mixed residential and non-residential property. This could include a shop with a flat above, or a landed estate where some of the land is used for business purposes, for example commercial woodlands or fields used for agricultural purposes. Commercial and agricultural leases The LBTT charge on leases is based on a Net Present Value ( NPV ) calculation, although this is more closely based on the actual rents, rather than on the highest rent in the first five years as is the case with SDLT. Tenants will have to submit multiple returns under the LBTT regime. A return has to be submitted at the beginning of a lease and on a three yearly basis throughout its duration. An LBTT return also has to be submitted at the end of a lease and on assignation of a lease. Following the initial return, the NPV will be recalculated when each further return is submitted and any additional LBTT paid, or overpayment of LBTT reclaimed. Because LBTT is based on the actual rents, rather than the rent in the first five years, the LBTT on leases can be higher than the SDLT would have been, even though the proposed rates and bands for leases are the same as for SDLT. This is because increases in rents due to rent reviews or other variations after the first five years of a lease will be taken into account for LBTT whereas they are ignored for SDLT

3 The LBTT chargeable on the NPV of lease rentals is as follows:- Up to 150,000 nil Above 150,000 1% LBTT is payable on the rent plus VAT (if VAT is payable on the rent). Up to an NPV of 5,000,000 the rates of SDLT and LBTT on leases are identical. However, following Budget 2016, there is now a 2% rate of SDLT that applies to the NPV above 5,000,000. Residential Leases There is no LBTT charge on residential leases. It should be noted that as student accommodation, care homes and similar buildings are treated as non-residential, leases of such buildings do attract an LBTT charge. Sub-sale Development Relief For the most part the reliefs and exemptions under LBTT are the same as those under SDLT, however there is no general sub-sale relief in the LBTT (Scotland) Act Following evidence presented to the Scottish Parliament by Brodies and others, which stated that the lack of sub-sale relief could make development projects more expensive, a working group was established to consider how a targeted relief for forward funding transactions could be introduced without creating a vehicle for avoidance. A limited relief for sub-sales, Sub-sale Development Relief, was included in the LBTT legislation. Sub-sale Development Relief can be claimed in transactions where there is a sub-sale of land and significant development is in prospect. The relief can be claimed up front by the purchaser who is buying the land and selling it on but the relief is withdrawn (in whole or in part) if development does not take place within 5 years. In sub-sale transactions where Sub-sale Development Relief is not available, LBTT is payable by both purchasers. This means there is a double LBTT charge compared with the position under SDLT. Existing sub-sale contracts should be reviewed, and consideration should be given in the future to structuring transactions in a different way to avoid the double LBTT charge. Unlike SDLT sub-sale relief, Sub-sale Development Relief is not available where the sub-sale takes the form of an assignation. Proposed LBTT charge on retail licences abandoned The Scottish Government had considered introducing an LBTT charge on retail licences but this was not actually included in the legislation. Transfer of shares in companies owning residential property The LBTT Act provides for regulations to be introduced to allow LBTT to be charged on the transfer of shares in residential property holding companies, where the transfer gives the transferee the right to occupy the property. This measure will

4 not apply to quoted companies, and will only apply to companies holding residential (and not commercial property). It is not expected that this measure will be introduced for the time being. Multiple Dwellings Relief (MDR) The LBTT multiple dwellings relief (for purchases of multiple properties suitable for use as a dwelling, such as houses and flats) works differently from the equivalent SDLT relief. SDLT has a minimum 1% rate for MDR, but under LBTT the tax payable on a purchase with MDR cannot be less than 25% of the LBTT payable without the relief. In cases where six or more properties are purchased, the LBTT without MDR is at the non-residential rates. Purpose built student accommodation consisting of cluster and / or studio flats can qualify for MDR, with each flat being treated as a separate dwelling. Where fewer than six dwellings are purchased then the 3% additional dwellings supplement still applies and must be accounted for in the MDR computation. Where an individual is replacing their main residence but also buying several dwellings then the supplement will not apply to the replacement residence, but will still apply to the additional homes being purchased. For example, an individual selling their home and buying a farm, consisting of a farmhouse (which will be their replacement residence) and several cottages will qualify for MDR on all of the properties, but will pay the 3% supplement only on the price attributable to the cottages. Which tax will apply? Which tax will apply will be decided as follows: With the exception of options, if the contract was concluded before 1 May 2012, and has not been varied or assigned, SDLT will apply no matter when the transaction completes; If the contract was concluded and completed before April 2015, SDLT applies; If the contract is concluded after 1 May 2012 and before April 2015, but completes after April 2015, LBTT applies; If the contract was concluded and substantially performed before April 2015, then completes after April 2015, SDLT was payable at the date of substantial performance. But, if the LBTT charge calculated at completion is more than the SDLT, the additional amount has to be paid to Revenue Scotland; If an option contract was concluded before April 2015 but the option is not exercised and the transaction not completed until after April 2015, LBTT will apply; LBTT will apply to new leases where a tenant takes entry after April 2015, and to the extension or variation of existing leases after April 2015 Complex transactions should be considered carefully to identify which regime will apply. This note is based on the legislation contained in the Land and Buildings Transaction Tax (Scotland) Act 2013 and secondary legislation in force as at 31 December Further updates will be issued as additional legislation is announced and published. If you have further queries please contact: Key Contacts

5 Nick Scott PARTNER, HEAD OF PROPERTY +44 (0) Isobel d'inverno DIRECTOR OF CORPORATE TAX +44 (0)