What is an exempt interest under section 5 of the Land and Buildings Transaction Tax (Scotland) Act 2013?

An exempt interest is an interest in land that does not trigger a charge to LBTT. Section 5 identifies security interests — rights held to secure payment of money or performance of an obligation — as exempt. The most common example is a standard security, the Scottish equivalent of a mortgage, taken by a lender over property.

Why are standard securities exempt from LBTT in Scotland?

Standard securities are exempt because they are security interests held by lenders to protect their lending position. The exemption ensures that the lending transaction itself does not give rise to an additional tax charge on top of any LBTT already due on the borrower's purchase of the property.

How does LBTT treat alternative property finance arrangements such as Sharia-compliant financing?

Paragraphs 21 to 24 of Schedule 7 of the Act ensure that interests held by financial institutions under alternative property finance arrangements, including Sharia-compliant financing, are treated as exempt interests. This prevents such arrangements from being disadvantaged compared with conventional mortgage lending under LBTT.

Can Scottish Ministers change which interests are exempt from LBTT?

Yes. Section 5 grants Scottish Ministers the power to add, remove, or vary categories of exempt interest by making regulations. This provides flexibility to adapt the tax system to new financial products or changing circumstances without requiring a new Act of the Scottish Parliament.

Land and Buildings Transaction Tax (Scotland) Act 2013 section 5

Exempt interest

Section 5 explains which interests in land are exempt from LBTT, principally security interests such as standard securities (mortgages), and gives Scottish Ministers the power to modify the list of exempt interests.

A security interest in land — a right held to secure payment of money or performance of an obligation — is exempt from LBTT
This means that when a lender takes a standard security (mortgage) over a property, that transaction does not attract LBTT
Additional exempt interests apply in the context of alternative property finance arrangements (for example, Sharia-compliant financing), as set out in Schedule 7 of the Act
Scottish Ministers have the power to add, remove or vary categories of exempt interest by regulations

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