The Land & Buildings Transaction Tax (“LBTT”) commenced on 1st April 2015. Commercial leases created on or after that date and subject to Land & Building Transaction Tax need to submit an LBTT Return every three years. This is usually every third anniversary of the “effective date” (this will mostly be the date off entry under the lease).
A return is NOT required for any lease that was subject to either Stamp Duty or Stamp Duty Land Tax.
Commercial tenants should also be aware that an LBTT Return will also be needed should there be an Assignation of the lease. The Assignee is responsible for the return. A Return is also required where there is a variation in the terms of the lease.
Why are 3 yearly LBTT Returns necessary?
Here’s the thinking behind this latest legislation. When someone buys a property, Land & Buildings Transaction Tax is paid based on the value of the transaction. It’s easy to assess that in a purchase because the tax is payable on the purchase price. It’s more difficult to assess the capital value in a lease because things change over time. Generally, there will be regular rent reviews which inevitably mean an increase in the rent. Alternatively, there may be a variation in the terms of the lease which has an impact on the rent. The lease may be assigned to someone else and, again, that might have an impact on the rent.
The tenant is obliged to make the Return. If the tenant fails to make the return, penalties will be applied that the tenant will have to pay. After making the return, penalties apply if the tenant fails to pay any tax due.
This area of law is complex and we recommend you discuss any concerns you have with us. It is important to remember, if you’re a tenant and your lease is subject to Land & Buildings Transaction Tax, it is your (not our) responsibility to make the Land & Building Transaction Tax Return.
If you would like further information on Land & Building Transaction Tax, please connect to the Revenue Scotland website where you’ll find very detailed information and instructions. You can visit the Revenue Scotland website by clicking here.
Please contact us if you need our assistance.