The first three-year review of tax chargeable on leases for Land and Buildings Transaction Tax (LBTT) begins on 1 April 2018.
The review, which will apply to the majority of LBTT leases, is a legal requirement set out in the LBTT (Scotland) Act 2013. Under the Act, tenants are required to submit a further return to Revenue Scotland every three years to review the lease and assess whether the correct amount of tax has been paid.
Revenue Scotland has created a new Leases section on its website – www.revenue.scot/leases - to help inform taxpayers and agents about the review and the requirement to submit a return every three years from the effective date of the transaction.
The section includes a factsheet and FAQs, worked examples and a tax calculator.
Head of Tax Operations, Chris Myerscough, explained the background to the review. She said: “During the LBTT Bill process, the Scottish Government established a working group to look at options for taxing leases in a way which would be better aligned to Scottish property law and would ensure that tenants pay the correct amount of tax over the term of the lease.
“As a result, the legislation includes a requirement for the tenant in a lease which has been subject to an LBTT return to submit a further return following every third anniversary of the lease, with the first review date being 1 April 2018.”
“These further returns will inform Revenue Scotland of any changes that have occurred since the last LBTT return was submitted and enable a review of the amount of tax chargeable over the lifetime of the lease.”
A further LBTT return is also required when a lease is assigned or terminated, both when the lease expires naturally and in instances when this occurs before the end of the agreed term.
The tenant is responsible for submitting the further return and for paying any additional tax due. The requirement to file the return applies even if there have been no changes to the lease or if no additional tax is payable. A repayment may be claimed if less tax is due than has been paid.
The review return must be submitted to Revenue Scotland within 30 days of the third anniversary, or within 30 days from the date of assignation or termination of the lease. Late returns will incur a penalty and will be subject to the tax authority’s existing penalty process.
Revenue Scotland has developed a new LBTT return to make it as easy as possible to submit the further return. Users of the Scottish Electronic Tax System (SETS) will be able to submit this online from 1 April 2018 and, for the first time, tenants will also be able to file this online.
Revenue Scotland has recently issued letters to tenants three months in advance of the first three-year anniversary to remind them of the requirement to file a return.