An LBTT return for notifiable leases must be made by the filing date (see LBTT1000) which is within 30 days of the day after the effective date.
A transaction can be notifiable without there being a tax charge.
Any tax due must be paid at the same time as the LBTT return is made under LBTT(S)A 2013 section 40. This also applies to 3-yearly review returns, assignation or termination returns, returns where the lease continues after a fixed term, a return in relation to a lease for an indefinite term and returns that become notifiable on variation.
The tax is treated as paid if arrangements satisfactory to Revenue Scotland are made for the payment of tax (see LBTT4008). Where the lease is to be registered, the LBTT return must be made and any tax paid before registration can take place.
Subject to certain restrictions, the LBTT return can be amended up to 12-months after the filing date. See LBTT4006.
Note: The effective date in these circumstances is the ‘relevant date’ for the purposes of the ‘relevant date’ field in the LBTT return.
Determining whether a lease transaction is notifiable to Revenue Scotland depends on the term of the lease, the chargeable consideration other than rent and the relevant rent.
Where the transaction is a linked transaction, the chargeable consideration means the total across all of the linked transactions.
The relevant rent is the average annual rent over the term of the lease or, where different rents are payable over different parts of the term and any of those amounts are ascertainable, the average rent over the term for which the highest ascertainable rent is payable.
Where the transaction is a partnership lease transaction, the relevant rent is the relevant chargeable proportion of the annual rent.
The following lease transactions are notifiable:
Where the grant of a lease is for a period of 7 years or more, the lease will be notifiable if the relevant rent is £1,000 or more or the chargeable consideration other than rent is £40,000 or more;
Where the grant of a lease is for less than 7 years but LBTT is payable on the transaction;
Where there is an assignation or renunciation of a lease and the original term of the lease was 7 years or more and the chargeable consideration for the assignation or renunciation is £40,000 or more;
Where there is an assignation or renunciation of a lease and the original term of the lease was less than 7 years but tax is payable;
assignation/renunciation of a lease where the original term was at least 7 years and consideration (e.g. premium) is at least £40,000 (even if no tax is payable)
The chargeable consideration includes the total of any premium or other capital payments and all rent payable over the entire term of the lease.
If the relevant rent is £1,000 or more, the nil rate band does not apply in relation to the consideration other than rent. Any such consideration is taxed at the next band and does not benefit from the nil tax rate.
This therefore means that the following are not notifiable to Revenue Scotland:
the grant of a lease for a period of 7 years or more where the chargeable consideration is less than £40,000 and the relevant rent is less than £1,000 per year;
the grant of a lease for a period of less than 7 years where the chargeable consideration does not exceed the nil rate band, and therefore no tax is payable;
the assignation or renunciation of a lease where the lease was originally granted for 7 years or more and the chargeable consideration for the assignation or renunciation is less than £40,000;
the assignation or renunciation of a lease where the lease was originally granted for less than 7 years and the chargeable consideration does not exceed the nil rate band application to the transaction, and therefore no tax is payable.
If the relevant rent is £1,000 or more, the nil rate band does not apply for the purposes of consideration other than rent. Therefore, when determining if the lease transaction is notifiable, this must be taken into account. There may be cases where the grant of a lease is for a period of less than 7 years but the chargeable consideration exceeds the nil rate band by virtue of this rule. The lease will be notifiable even in cases where no tax may be payable.
If the transaction is non-notifiable but the lease is later varied to extend its term or increase the rent and the transaction then becomes notifiable, a return must be made within 30 days of the date the variation takes effect. In these cases, the date the variation takes effect is the relevant date. The rules can be found here: Land and Buildings Transaction Tax (Scotland) Act 2013 (legislation.gov.uk)
In addition, a lease will not be notifiable if:
it is an exempt transaction (see LBTT3002);
the chargeable consideration is less than £40,000;
the chargeable consideration does not exceed the nil rate band.
The chargeable consideration includes any amount in respect of which tax would be chargeable but for a relief being claimed. Where the transaction is one of a number of linked transactions, the chargeable consideration is the total of the chargeable consideration for all the linked transactions.
Further returns or becomes a notifiable transaction
If a lease transaction return has been notified to Revenue Scotland or, if a lease transaction becomes notifiable and a return is subsequently filed due to:
contingency ceasing or consideration becoming ascertained under section 31, schedule 19
a lease for fixed term continuing after end of term under paragraph 20, schedule 19
a lease for an indefinite term under section 22, schedule 19
a lease transaction becoming notifiable after variation under paragraph 30, schedule 19
then a further return to Revenue Scotland must be made every 3 years. The rules relating to 3-year lease reviews can be found here: LBTT6007 - Three yearly review of the tax chargeable | Revenue Scotland
If a lease is notifiable, a further return must also be made where the lease is assigned or terminated. The only exception to this is where the lease was exempt from charge by virtue of a full relief being claimed on the first return.
If the relief that was fully claimed on the first return is not available to the assignee, the assignation is treated as the grant of a new lease by the assignor for a term equal to the unexpired term of the original lease and on the same terms as those on which the assignee holds that lease after assignation. A return would then be required if the notifiable conditions are met. This paragraph applies to:
sale and leaseback relief
relief for alternative finance investment bonds
public bodies relief.
The above does not apply where the relief in question is group relief, reconstruction relief, acquisition relief or charities relief and is withdrawn as a result of a disqualifying event occurring before the effective date of the assignation.
The exceptions listed above do not apply where a person is treated as entering into a transaction by virtue of section 11(3) of the LBTT(S)A 2013 (a contract providing for conveyance to third party that is substantially performed).
1. A lease transaction where the term is for 10 years with an annual rent of £750 and a premium amount of £10,000. The rent is under £1,000 and the premium is under £40,000. An LBTT return is not required for this transaction.
2. A lease transaction where the term is for 5 years with an annual rent of £2,000. The chargeable consideration does not exceed the nil rate band (£150,000). An LBTT return is not required for this transaction.
3. An assignation or renunciation of a lease where the term is for 8 years and the premium paid is £20,000. The chargeable consideration is based on a premium amount only. This is under £40,000 and so a LBTT return is not required for this transaction.
4. An assignation or renunciation of a lease where the term of the lease is 6 years and the premium paid is £90,000. The chargeable consideration is based on a premium amount only. This is under the nil rate band and so an LBTT return is not required for this transaction.
Penalties and Interest
A tenant who fails to make an LBTT return by the filing date is liable to a late-filing penalty (see RSTP3005).
If the return contains an inaccuracy, the tenant may be liable to an inaccuracy penalty (see RSTP3011).
A tenant who fails to pay tax before the expiry of 30 days after the payment is due (the day the LBTT return is made) is liable to a penalty (see RSTP3008). Interest will be charged on the amount of any unpaid tax from the filing date until the date it is paid (see RSTP4002).
A tenant is required to keep and preserve certain records whether or not they are required to make a LBTT return. See LBTT9001 for further guidance.
Further LBTT returns
Depending on the circumstances, a further LBTT return may also be required at some point – see:
A lease transaction may not be notifiable initially. However, the landlord and tenant may agree to extend the term or increase the rent payable and the variations may mean that the transaction would have been notifiable. At this point, an LBTT return is required within 30 days of the day after the date from when the variation takes effect. This date is the filing date (see LBTT1000).
These rules are covered at LBTT(S)A 2013 Schedule 19, Paragraph 30.
Note: The date the variation takes effect is the ‘relevant date’ for the purposes of the LBTT return.