The Land and Buildings Transaction Tax (LBTT) provisions require the tenant in a lease that has been notifiable to submit a further return to Revenue Scotland every three years.
You need to submit a lease return on:
- 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)
These lease returns will inform Revenue Scotland of any changes that have occurred since the last LBTT lease return was submitted.
Three-yearly review Returns
You don't need to submit a further return every time a change to the lease takes place.
Instead, unless the lease has terminated, the tenant will need to submit a three-yearly review return to Revenue Scotland. This will be at every third anniversary of the effective date of the lease. These three-yearly review returns will inform Revenue Scotland 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.
A furniture company enters a 5-year lease of a factory for a rent of £50,000 per annum. The effective date of the transaction was 1 December 2015. The Net Present Value (NPV) is calculated using the £50,000 payable in each of the 5 years.
The agent for the tenant submitted an LBTT return and the tax liability was paid based on the NPV.
The date of the first three-yearly review will be 1 December 2018, the third anniversary of the effective date of the lease. A review return must be submitted no later than 31 December 2018.
The effective date for the purposes of the review return will be the same as the original lease transaction. The relevant date will be 1 December 2018.
The amount of rent paid in the first three years was at the agreed rate of £50,000 per annum and the projected annual rent payable for the remainder of the lease is also unchanged at £50,000. The NPV remains and no further tax is payable.
Even though there have been no changes to the lease and no additional tax is payable, an LBTT return must still be submitted.
The next three-year review is due on 1 December 2021. The tax rates in force at the effective date of 1 December 2015 will continue to apply throughout the term of the lease.
Assignation of the lease
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 an assignation return, detailing the changes made and providing the assignee’s details.
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 the three-yearly review returns on every third anniversary of the original effective date of the lease. In other words, the three-yearly review cycle does not restart on assignation. The new tenant may also be required to submit an LBTT return if the original return was not notifiable or if any form of payment has been made on assignation.
A factory was let to Tenant A for 10-years with an effective date of 15 September 2016. The annual rent paid by Tenant A was £85,000.
Tenant A submitted an LBTT return and paid the tax liability within 30 days from the effective date.
On 10 September 2018, Tenant A assigned the lease to Tenant B. The relevant date of the assignation is the date it is assigned. This is the date which must be inserted in to the relevant date field in the assignation return.
Tenant A, as the assignor, completed an assignation return that included any changes made to the lease since their last LBTT return and paid any tax chargeable. The tax due was calculated using the tax rates and bands in force on the effective date of 15 September 2016. The assignation return was submitted within 30 days of the date it is assigned, in this example, no later than 10 October 2018.
The effective date remains the same (i.e. 15 September 2016).
The obligation to file LBTT returns and pay any tax now passes to Tenant B. The 3-year review anniversary remains unchanged, with the first 3 yearly review date being 15 September 2019. This review return must be submitted no later than 15 October 2019. Further returns are required on the following third anniversaries, unless the lease is terminated.
Tenant B paid a premium of £200,000 for the assignation of the lease. As the premium is over the notifiable threshold of £40,000, Tenant B will have to submit their own LBTT return within 30 days from the assignation date and pay the LBTT of £1,500.
Note: if the premium paid was £50,000 it would still be notifiable as it is over the notifiable threshold of £40,000 but no LBTT would be payable.
Termination of the lease
Where a lease has been terminated, either early or on the natural expiry of the lease, the tenant must complete a further LBTT return.
The termination return will recalculate the tax using the rates and bands in force at the effective date of the lease. This 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 or may result in more tax due.
If more tax is due, the tenant must make payment of the additional tax at the same time as the termination return is made.
The effective date of a 10-year lease of a restaurant for rent of £25,000 per annum is 1 November 2017. The net present value (NPV) is calculated by using the £25,000 payable in each of the 10 years.
The tenant submitted a LBTT lease return and paid the tax of £579.
The tenant submits their three-yearly review returns in 2020 and 2023. The lease then terminates early on 31 October 2024.
The tenant must complete a termination return to reflect any changes to the lease since the last 3-year review return was submitted. The return must be made no later than 30 November 2024. The relevant date for the termination return is 31 October 2024.
The LBTT payable will be calculated for the lease up to the termination date using the tax rates and bands that were in force at the effective date. The NPV is lower than originally returned and less tax is due than has already been paid, resulting in an LBTT overpayment of £551.
When the tenant or agent completes their termination return, they should complete ‘YES’ that they are claiming a repayment of £551. The NPV will be automatically calculated when the termination return is completed.