A new genre of post has been cropping up on local Facebook groups: house swaps. The idea has clear appeal, particularly in a slow market. You avoid the open market, sidestep marketing fees, and, in theory, keep things simple between two willing parties.

In reality, a house swap in Scotland is rarely as straightforward as it sounds. Under Scots Law, swapping homes with a friend or neighbour is not one transaction. It is two, and most of the usual rules apply to both.

A House Swap Is Two Transactions, Not One

Scots Law has a specific name for this kind of arrangement: an excambion. Each party is buying a property from the other and selling their own. Revenue Scotland and the Land Register treat it as two separate land transactions, each of which must be documented, registered, and reported for tax purposes.

That means each party will need:

• A set of missives for the sale of their existing home
• A separate set of missives for the property they are acquiring
• A Home Report, or at least a valuation, on their property
• Searches and a title examination on each property
• An LBTT return submitted for each acquisition

Valuations and the Home Report

Each party, if they are obtaining a mortgage to fund the exchange, will need a valuation report for their lender. A Home Report, which is mandatory whenever a residential property is marketed in Scotland, will provide an independent valuation by a chartered surveyor along with other useful information for the buyer.

A swap being made privately through an unmarketed agreement could, technically, bypass the Home Report. Although we wouldn’t recommend this, and a valuation will still likely be required.  

Goodwill between friends does not replace an independent valuation, and getting the numbers wrong can have knock-on effects for mortgages, tax, and any sum changing hands between you.

The LBTT Sting in the Tail

Many would assume that, even if no money is changing hands, or only a small balancing payment is being made, no Land and Buildings Transaction Tax (LBTT) is due. That is not how exchanges work.

Revenue Scotland's rules on exchanges provide that each party pays LBTT on the greater of the market value of the property they are acquiring and the consideration they are giving. In a swap, the consideration given is the value of the property given up, adjusted for any equality payment made or received.

To illustrate, take Sarah and Tom, who agree to swap homes. Sarah's house is valued at £400,000 and Tom's at £300,000, and Tom pays Sarah £100,000 to balance the exchange. Sarah, who is acquiring Tom's £300,000 home, pays LBTT on £300,000: the value of what she acquires matches the net value of what she has given up, namely her £400,000 home less the £100,000 received. Tom, acquiring Sarah's £400,000 home, pays LBTT on £400,000: the value of what he acquires matches what he has given, namely his £300,000 home plus £100,000 cash. Each party pays LBTT on the value of the property they actually got.

This only works if the valuations are accurate and the equality payment is properly calculated. Where parties agree an informal "straight swap" with no equality payment, despite the properties being worth different amounts, the rule produces a much harsher result: both parties end up paying LBTT calculated on the higher of the two property values, because the consideration given by the party acquiring the cheaper home includes their more valuable property. The cost of getting that wrong can be thousands of pounds in additional LBTT for one or both parties.

The part-exchange relief that can apply where a homeowner sells to a house builder does not apply to swaps between individuals. There is no equivalent relief for friends, neighbours, or family members exchanging homes.

The Additional Dwelling Supplement Trap

If either party already owns another residential property and is not replacing their main residence in the swap, the Additional Dwelling Supplement (ADS) may also apply. The ADS is currently 8% of the full purchase price and is charged in addition to LBTT.

Joint owners, spouses, civil partners, and cohabiting couples are treated together for ADS purposes. A swap can easily pull one or both parties into ADS territory if the wider position has not been thought through, particularly where one party owns a rental flat, an inherited home, or a holiday property elsewhere.

Mortgages, Surveys, and Standard Conveyancing

If either party has a mortgage, the lender will be involved. The existing loan will need to be redeemed, and any new borrowing on the acquired property will require a fresh application, valuation, and approval. Lenders often have their own views on swaps between individuals and may ask additional questions about the basis of the transaction.

The Scottish Standard Clauses (Edition 6) will normally form the basis of each set of missives, with the usual obligations around the condition of central heating, electrical installations, and other systems. Each party is, in legal terms, both a seller and a buyer, and will need their solicitor to negotiate both sides.

Our article What Does 'Conclusion of Missives' Actually Mean When Buying or Selling a Home in Scotland? explains the missives process in plain language.

Why Each Party Needs Their Own Solicitor

A solicitor cannot act for both parties to a contract where there is a clear conflict of interest. In a house swap, the same solicitor cannot represent both Sarah and Tom; each must have their own legal adviser. This is not a technicality. Both parties have distinct interests to protect, particularly when the values differ or when one side has more to lose if the deal falls through.

A good Scottish residential property solicitor will explain the tax position, negotiate the missives, raise the necessary searches, liaise with mortgage lenders, and coordinate settlement so that both transactions settle on the same date. They will also make sure the title to each property is properly examined and that any burdens, servitudes, or restrictions on the heritable property are flagged before missives are concluded.

Speak to Paris Steele Before You Commit

A house swap can work, particularly where both parties have realistic expectations and the right advice. The danger is in assuming that an informal arrangement between friends does not need the same legal care as a sale on the open market.

If you have seen a post that looks promising or have a swap in mind with someone you know, speak to us before you commit to anything in writing. At Paris Steele, we have experts who can talk you through the likely costs, the tax position, and what each step will involve, so you can decide whether the swap really stacks up. 

To get in touch, contact us at our North Berwick or Dunbar offices.