Is the second transaction in an exchange of properties exempt from LBTT under Scottish law?

Yes. Under Schedule 7 paragraph 9 of the Land and Buildings Transaction Tax (Scotland) Act 2013, the second transaction in an exchange of properties is completely exempt from LBTT charge. This exemption applies provided the taxpayer has fully complied with all LBTT requirements relating to the first transaction, including payment of any tax due.

What conditions must be met for the second transaction exemption to apply?

The exemption for the second transaction is conditional on full compliance with all provisions of the Act relating to the first transaction. This includes submitting the appropriate land transaction return, following all relevant rules, and paying any LBTT chargeable on the first transaction. Failure to meet these conditions may result in LBTT being due on both transactions.

How does LBTT treat an exchange of properties in Scotland?

The legislation treats an exchange of properties as two separate transactions for LBTT purposes. However, to avoid double taxation, only the first transaction is subject to LBTT charge, calculated by reference to the market values involved. The second transaction is exempt from charge entirely under paragraph 9 of Schedule 7.

What happens if LBTT requirements for the first transaction in an exchange are not met?

If the taxpayer fails to comply with all LBTT obligations for the first transaction — such as not submitting the required return or not paying the tax due — the exemption for the second transaction may not apply. This could result in LBTT being chargeable on both transactions in the exchange, effectively doubling the tax liability.

Land and Buildings Transaction Tax (Scotland) Act 2013 section Schedule 7 paragraph 9

Exemption from charge for the second transaction

Schedule 7 paragraph 9 provides that the second transaction in an exchange of properties is exempt from LBTT, provided that the rules relating to the first transaction have been properly followed.

When two properties are exchanged, only one of the transactions attracts an LBTT charge — the first transaction.
The second transaction is completely exempt from LBTT charge.
This exemption is conditional on full compliance with all LBTT requirements for the first transaction.
Compliance includes the payment of any LBTT that is due on the first transaction.

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