Land and Buildings Transaction Tax (LBTT), the Scottish equivalent of Stamp Duty Land Tax (SDLT), has applied to purchases of residential and commercial property and leases of non-residential property in Scotland since 1 April 2015.
One of the ways in which LBTT differs from SDLT is that, where a return for a lease has been made under LBTT, the tenant is required to submit further returns to Revenue Scotland on certain future events, including:
- On assignment of the lease,
- On termination of the lease, and
- Every third anniversary of the effective date of the lease.
The last of these requires three yearly returns to be submitted at the end of Year 3, Year 6, Year 9 etc. of a lease. As LBTT was introduced in April 2015, the first three yearly returns will be due in April 2018.
Filing and payment obligations for three yearly returns
Further LBTT returns must be filed by tenants within 30 days of the third anniversary of the effective date of the lease.
Depending on the calculations included in these returns, tenants may have to pay additional LBTT or be able to claim a refund. Any additional LBTT due must be paid at the same time as making the return. It should be noted that a return is still required even if there has been no change in rents, and therefore no change in LBTT liability, during the three years.
Further returns can be filed:
- Online using either:
- the Scottish Electronic Tax System (SETS) for solicitors and agents, or
- the new online lease review return which will be available on the Revenue Scotland website for tenants only from 1 April 2018.
- On paper using the forms available on the Revenue Scotland website.
Tenants may be liable to penalties if they fail to make a three yearly return where one is required. Interest will be charged on late paid LBTT, and penalties can also arise for failure to pay within 30 days of the date payment is due.
If you have clients who are tenants of commercial property leased in Scotland after 1 April 2015 then it may be helpful to remind them of the requirement to file a three yearly return as, depending on the date the lease was entered into, this could be due as soon as 1 April 2018. It may also be helpful to remind them that any extra LBTT liability which may arise will need to be paid at the same time the return is filed.
Further guidance on LBTT and leases in Scotland, including information on calculating tax and submitting returns can be found on the Revenue Scotland website here.