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Land and Buildings Transaction Tax: Commercial leases and three-yearly returns

18 January 2018
With the third anniversary of Land and Buildings Transaction Tax in Scotland fast approaching, we consider the key issues for commercial tenants.

The third anniversary of Land and Buildings Transaction Tax (LBTT) is fast approaching and from 1 April 2018 the requirement to submit three year returns for non-residential leases will be upon us.

One of the significant differences between SDLT and LBTT is the additional obligation placed on the tenant to make further mandatory LBTT returns for leases that were subject to LBTT on grant:

  • Every three years on the anniversary of the 'effective date' of the lease (usually the date of entry);
  • On termination of the lease (for any reason); and
  • On assignation of the lease.

Responsibility for compliance with three year returns rests with the tenant. Returns are required to be submitted to Revenue Scotland within 30 days of the third anniversary of the 'effective date' and every three years thereafter during the life of the lease. 

Any variations to a lease within the three year period may lead to more tax becoming due and payable or the potential for a refund of tax becoming due. The additional tax will require to be submitted along with the return.

Assignations require particular care. If you are the assignee/tenant under an assigned lease you will have taken on the responsibilities of the previous tenant and the three year return shall be due based on the date of entry/effective date of the original LBTT lease.

The requirement to submit the additional return applies even where there have been no changes in the circumstances of the lease, such as a variation of rent or extension of term. 

Revenue Scotland is suggesting that it will send out reminders prior to the third anniversary of non-residential tenancies, based on the details on their system, because this is the first time three year returns will be required. Failure to receive a reminder will not constitute a reasonable excuse should you receive a penalty for submitting a return late. Revenue Scotland is also unlikely to issue reminders for future returns. Responsibility for compliance with three year returns remains with the tenant.   

Failure to make the required returns and/or late payment of any LBTT due will result in penalties and interest being applied.  It is notable that penalties under the LBTT regime are significantly higher than under SDLT.  Penalties of £100 are incurred if the return is one day late and if the return is up to six months late the penalty can be up to £1,000.  Additional tax geared penalties and interest may also be due for late payment of any LBTT arising.

The form of the return is yet to be revealed by Revenue Scotland but we shall update you once we know more.  Revenue Scotland is aiming to make the return as simple as practicable to comply with.

What action do you need to take? 

Ensure you have diarised ahead and plan a system to monitor the submission of your three year returns.  

If you want to discuss the above please do not hesitate to contact your usual contact at DWF Real Estate.

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.