A new reporting mechanism is required every three years for leases in Scotland, writes Justine Riccomini (ICAS).
Land and Buildings Transaction Tax (LBTT) was originally heralded as a new and progressive tax for Scotland that set itself apart from its UK counterpart, SDLT, having jettisoned the old ‘slab system’ of charging in favour of a more progressive version. The Land and Buildings Transaction (Scotland) Tax Act 2013 came into effect from 1 April 2015. As things have turned out, however, SDLT and LBTT have become more and more closely aligned: both now use a ‘progressive’ basis of tax rates; both have introduced a 3% additional charge for homes that are not the main residence of the owner; and it is expected that both will have a first-time buyer relief. However, there is one notable difference in Scotland’s LBTT: a reporting mechanism that is required every three years for leases.
Three-year reviews: The LBTT(S)A 2013 sets out the legislative requirement for a tax return to be submitted for leases in Scotland in specific circumstances, including:
every three years from the effective date of the lease (see Revenue Scotland’s LBTT 6015);
on assignation; and
on termination.
Less common in Scotland than in England, leases are used for commercial property. The LBTT legislation does not require a further LBTT return to be submitted to Revenue Scotland every time a change to the lease takes place. Instead, LBTT(S)A 2013 Sch 19 para 10 requires the tenant, unless the lease has been terminated or assigned, to submit a further LBTT return on every third anniversary of the effective date of the lease (see Revenue Scotland’s LBTT 6016) and any additional LBTT paid or overpaid LBTT reclaimed. Revenue Scotland concerns itself with changes in the original nature of the lease, such as variations, extensions, rent reviews and tacit relocation. The obligation to report applies equally to variations to leases which were treated as new leases under the Land and Buildings Transaction Tax (Transitional Provisions) (Scotland) Order, SSI 2014/377, by virtue of LBTT(S)A 2013 s 29.
With LBTT reaching its third birthday on 1 April 2018, it is only now that the three-yearly review starts to become effective. Clients need to be reminded of this – and that the responsibility sits with the tenant to make the return.
Assignations and terminations: A qualifying lease which is later assigned or terminated must be reported by the outgoing tenant (the assignor) within 30 days of the ‘relevant date’ – this being the date on which the lease was assigned or terminated (see Revenue Scotland’s LBTT 6017).
Timetable for declarations and payments: Wherever a return is required under Sch 19, any tax payable must be paid at the same time the return is made – within 30 days, beginning with the day after the review date. The tax rates and bands to be applied at the review of the tax chargeable are those that were in force at the effective date of the transaction. If the review calculations reveal that less tax is due, the overpaid tax will be repaid by Revenue Scotland. Note, however, that the return is required even if there is no tax at stake or there have been no variations to the lease.
Tenants based outside Scotland: Revenue Scotland has provided guidance in LBTT 6014, but care will be needed in particular for tenants from outside Scotland who may not be aware of this requirement. Non-compliance can be expensive, even if no tax is due, and Revenue Scotland notes in its annual report for 2016/17 that it issued notices charging penalties and interest of £507,000, demonstrating that it is not shy of adopting a punitive stance.
Exemptions: According to LBTT 6014, exemptions to the three-yearly review are:
leases which have never been subject to LBTT (i.e. leases which were and continue to be subject to SDLT or stamp duty); and
leases which have been subject to LBTT but exempted from charge because full relief is claimed on the first LBTT return.
Home >Articles > Beware! Leases: LBTT three-year review
Beware! Leases: LBTT three-year review
A new reporting mechanism is required every three years for leases in Scotland, writes Justine Riccomini (ICAS).
Land and Buildings Transaction Tax (LBTT) was originally heralded as a new and progressive tax for Scotland that set itself apart from its UK counterpart, SDLT, having jettisoned the old ‘slab system’ of charging in favour of a more progressive version. The Land and Buildings Transaction (Scotland) Tax Act 2013 came into effect from 1 April 2015. As things have turned out, however, SDLT and LBTT have become more and more closely aligned: both now use a ‘progressive’ basis of tax rates; both have introduced a 3% additional charge for homes that are not the main residence of the owner; and it is expected that both will have a first-time buyer relief. However, there is one notable difference in Scotland’s LBTT: a reporting mechanism that is required every three years for leases.
Three-year reviews: The LBTT(S)A 2013 sets out the legislative requirement for a tax return to be submitted for leases in Scotland in specific circumstances, including:
every three years from the effective date of the lease (see Revenue Scotland’s LBTT 6015);
on assignation; and
on termination.
Less common in Scotland than in England, leases are used for commercial property. The LBTT legislation does not require a further LBTT return to be submitted to Revenue Scotland every time a change to the lease takes place. Instead, LBTT(S)A 2013 Sch 19 para 10 requires the tenant, unless the lease has been terminated or assigned, to submit a further LBTT return on every third anniversary of the effective date of the lease (see Revenue Scotland’s LBTT 6016) and any additional LBTT paid or overpaid LBTT reclaimed. Revenue Scotland concerns itself with changes in the original nature of the lease, such as variations, extensions, rent reviews and tacit relocation. The obligation to report applies equally to variations to leases which were treated as new leases under the Land and Buildings Transaction Tax (Transitional Provisions) (Scotland) Order, SSI 2014/377, by virtue of LBTT(S)A 2013 s 29.
With LBTT reaching its third birthday on 1 April 2018, it is only now that the three-yearly review starts to become effective. Clients need to be reminded of this – and that the responsibility sits with the tenant to make the return.
Assignations and terminations: A qualifying lease which is later assigned or terminated must be reported by the outgoing tenant (the assignor) within 30 days of the ‘relevant date’ – this being the date on which the lease was assigned or terminated (see Revenue Scotland’s LBTT 6017).
Timetable for declarations and payments: Wherever a return is required under Sch 19, any tax payable must be paid at the same time the return is made – within 30 days, beginning with the day after the review date. The tax rates and bands to be applied at the review of the tax chargeable are those that were in force at the effective date of the transaction. If the review calculations reveal that less tax is due, the overpaid tax will be repaid by Revenue Scotland. Note, however, that the return is required even if there is no tax at stake or there have been no variations to the lease.
Tenants based outside Scotland: Revenue Scotland has provided guidance in LBTT 6014, but care will be needed in particular for tenants from outside Scotland who may not be aware of this requirement. Non-compliance can be expensive, even if no tax is due, and Revenue Scotland notes in its annual report for 2016/17 that it issued notices charging penalties and interest of £507,000, demonstrating that it is not shy of adopting a punitive stance.
Exemptions: According to LBTT 6014, exemptions to the three-yearly review are:
leases which have never been subject to LBTT (i.e. leases which were and continue to be subject to SDLT or stamp duty); and
leases which have been subject to LBTT but exempted from charge because full relief is claimed on the first LBTT return.
