What a difference three years make — LBTT returns

Time flies. It’s been nearly three years since the land and buildings transaction tax (LBTT) was introduced to replace stamp duty land tax in Scotland (SDLT).

While the two regimes are broadly similar, one major difference here is for tenants to submit returns every three years throughout a notifiable lease, as well as on assignation and termination.

Leases with an ‘effective date’ (usually the entry date) on or after 1 April 2015 are covered by the regime, as are those older leases that have seen extended terms.

Returns must be submitted on the third anniversary of the effective date, which means the first cycle will be triggered in the coming days.

What’s the point of the return?

Commercial leases often continue for a number of years and are subject to changes such as extensions, variations in rent, and assignations (where a third party becomes the tenant). These factors can affect the amount of LBTT that has to be paid.

As such, Revenue Scotland, the body responsible for the management and collection of Scotland’s devolved taxes, uses the returns to recalculate the tax due. This could mean tenants have to pay more, or indeed that they can claim if they have overpaid.

Penalties for non-compliance include £100, which increases to £1,000 after six months. Tenants could also be liable for penalties for late payment of tax.

Any exceptions?

There are exceptions, with returns not required for —

  • Leases not previously notifiable, for example those premises where the rent did not meet the threshold, or the duration was not long enough

  • Leases taxed under SDLT which have not yet fallen within the LBTT regime – leases which were taxed under this regime are not subject to three-yearly reviews

  • Cases where the tenant has initially benefitted from full LBTT relief — such as charities relief

A note of caution

Responsibility for compliance rests with the tenant and, even if no tax is payable, a return must be submitted.

In addition, tenants taking on an assigned lease — where a third party assignee becomes a tenant under a lease — take over the obligations to submit the returns.

In these cases, the return is linked to the original date, not the date of assignation. The assignor is liable for submitting a return on the date of assignation.

Furthermore, the current tenant under a lease subject to the LBTT regime must submit a return within 30 days of the day the lease is terminated.

And while Revenue Scotland has been sending out reminders, it’s advisable to remember the onus is on you, as a tenant, to comply, so it’s best to make sure you have noted when the returns need to be made and are prepared.

The best advice is to contact your solicitor in advance of the effective date, and have to hand copies of the original and any additional returns.

Of course, you can contact our experts for help, including advice on whether additional tax is due.