The Scottish Parliament has devolved powers over some tax matters. The main taxes that individuals will encounter are the Scottish Rate of Income Tax (SRIT) and Land and Buildings Transaction Tax (LBTT).

LBTT

This applies to land transactions, payable by the buyer. Different rates of LBTT apply to residential and non-residential transactions. LBTT is administered by Revenue Scotland rather than HMRC and while it is based on the Stamp Duty Land Tax rules, there are numerous differences.

The Additional Dwelling Supplement (ADS) applies to the purchase of additional residential properties in Scotland with a value of £40,000 or more (e.g. buy-to-let properties and second homes) and is payable on top of the standard LBTT charge. The ADS is also payable when companies and certain other entities buy residential property.

The ADS is currently calculated based on 3% of the total purchase price of the property. The Scottish Government recently announced proposals to increase the ADS rate to 4% with effect from 25 January 2019.

LBTT is also payable by tenants in relation to commercial leases. There is also a requirement for tenants to file LBTT returns every three years and / or if a lease is assigned or terminated.

SRIT

The SRIT applies to “Scottish taxpayers” from April 2016. This is based on having a main place of residence in Scotland. Those individuals who are also resident in another country in the UK may therefore not be a Scottish resident or may have the ability to modify their presence in Scotland so that they fall outside the SRIT provisions.

LBTT Top tip: The overall amount of LBTT payable can vary significantly depending on whether:

1. The land transaction is classified as residential or non-residential;

2. The ADS is applicable (resulting in an additional amount of LBTT to pay on the purchase of a dwelling); and

3.The availability of reliefs (e.g. multiple dwellings relief, group relief, charities relief).

This is a complex area, our specialists can assist in confirming the LBTT position of a land transaction and identifying opportunities to mitigate the LBTT cost.

 

SRIT Top tip: It is important to note that the SRIT applies to non-savings and non-dividend income. Owners of their own company have more flexibility in how to withdraw their earnings from the business and they would usually choose between taking salary, paying dividends, or perhaps request that the company makes a pension contribution. Each circumstance will provide a different tax result. Whilst the changes to dividend taxation (which came into effect from 6 April 2016) have removed much of the tax advantage of paying dividends, this option does tend to be marginally more tax efficient.

The potential tax saving of taking dividends over salary is increasing from April 2019. Get in touch with one of our Tax Advisers to chat through your situation.  

Read the next section of our tax planning guide: charitable giving or return to the main page.

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