Land and Buildings Transaction Tax (LBTT) is a tax on property transactions in Scotland, and applies to purchases of both residential and commercial properties, and leases of commercial premises granted on or after 1 April 2015. LBTT is a tax similar in a number of ways to Stamp Duty Land Tax, which applies to the remainder of the UK (until 1 April 2018, when Land Transaction Tax is introduced in Wales), but it differs in several significant respects.
One of the components of the LBTT regime, as it applies to leases, is the requirement for three yearly reviews of the tax chargeable. The approach to taxation of leases that the Scottish Government has taken, is for leases to be reviewed for tax purposes on a regular basis over their lifetime, so that the tax payable more accurately reflects the amount of rent actually paid over the entire period of the lease.
The requirement for three yearly returns
Since 1 April 2015, any commercial lease granted on or after that date is potentially liable to LBTT. A tax return and payment of any LBTT due will normally have been made by the tenant to Revenue Scotland at the time of granting the lease (unless it is a low value lease which is not notifiable).
The LBTT regime requires the tenant of the lease to make further returns to Revenue Scotland every three years during the currency of the lease. The first third anniversaries of early LBTT leases will start to occur from 1 April 2018.
A return must be made by the tenant every three years (i.e. in year 3, year 6, year 9 and so on) even if there have been no changes to the rent, meaning there is no further tax payable. However, if a relief was claimed when the lease was granted (such as group relief or charities relief), and the conditions for the relief are still met, the tenant is not required to submit a review return.
The relevant date is the third anniversary of the effective date of the lease. Accordingly, if the lease has been assigned to a new tenant during the three year period (or at any other time for that matter) the three year filing date is still calculated by reference to the original effective date of the lease, not the date of assignation.
Making a return
It is the responsibility of the current tenant under the lease to make the three yearly return, and pay any tax that is due. Returns can be made online or by submission of a paper return. Revenue Scotland's online filing system will be updated in advance of 1 April 2018, to cater for the...