The Land and Buildings Transaction Tax (LBTT) requires the tenant in a lease that has been subject to an LBTT return to submit a further return to Revenue Scotland.
You need to submit a Lease Review return:
- Every third year anniversary of the effective date of lease
- Assignation of the lease
- Termination of the lease (whether the lease is terminated early or on natural expiry)
The lease review returns will inform us of any changes that have occurred since the last LBTT lease return was submitted.
You don't need to submit a further return every time a change to the lease takes place. Unless the lease has been assigned or terminated, further return needs to be submitted by the tenant on every three year review date.
This will be every third anniversary of the effective date of the lease (i.e. year 3, year 6, year 9 etc.).
These three-year LBTT review returns will inform us of any changes that have occurred since the effective date or last review date and will allow Revenue Scotland to review the amount of tax chargeable on the lease and take account of those changes.
Note: A review return must be submitted even if there have been no changes to the lease, or if no additional tax is payable.
Tax of £6,816 was paid at the time the LBTT return was submitted. As the effective date for this transaction was 1 April 2018, the date of the first three-year review will be 1 April 2021.
The actual amount of rent paid in the first three years was £120,000 per annum and the estimate of the rent payable for the remainder of the duration of the term has been reassessed in line with this. This gives rise to tax of £8,479. As tax of £6,816 was paid on the original transaction the further tax of £1,663 must be paid on the three-year review return.
An assignation of a lease is the transfer by the tenant of their interest under the lease to another party. Where a lease is assigned, the outgoing tenant (the ‘assignor’) must complete a further return.
After the effective date of the assignation, the new tenant (‘the assignee’) takes over responsibility for duties in relation to LBTT.
The new tenant will be required to make a further return on every third anniversary of the effective date of the lease. An assignation made in year two, for example, will still require a further return in year three, unless it is terminated before then. The new tenant (the ‘assignee’) may also be required to submit an LBTT return. This depends on whether any form of payment has been made to.
An LBTT return is submitted for a ten year lease with a rent which is projected to be £100,000 per annum. Tax of £6816 was paid at the time the LBTT lease return was submitted.
2 years later the lease has been assigned and the outgoing tenant (‘assignor) must submit an assignation return to notify details of the new tenant (‘assignee’) and to provide details of the amount of rent payable under the lease (rent paid up to the date of assignation plus projected rent for the remainder of the lease term).
The amount of rent payable under the lease remains at £100,000 per annum and there are no other changes to the lease terms at the date of assignation and therefore the tax liability of £6816 is unchanged.
As the tax liability remains unchanged there is no further tax due, although a return must still be submitted.
Where a lease has been terminated, whether early through renunciation or for any other reason (such as irritancy) or on the natural expiry of a lease,) the tenant must complete a further LBTT return.
The early termination of a lease may give rise to a repayment if less rent has become payable than was originally returned due to a reduction in the term of the lease.
The tenant must recalculate the tax using the rates and bands in force at the effective date of the lease. If the tenant calculates that more tax is due, they must make payment of the additional tax at the same time as the LBTT return is made.
An LBTT return is submitted for a ten year lease with a rent projected to be £100,000 per annum and tax of £6816 was paid at the time the LBTT lease return was submitted.
2 years later the lease is being terminated and a termination return must be submitted by the tenant to provide details of the actual rent paid during the period of lease up to the date of termination. The amount of rent paid under the lease is £200,000 and the total tax liability is reduced to £399.
A repayment of the difference will be due on submission of the termination return.