For tax purposes, leases have to be treated quite differently to standard purchases of land and buildings. In most cases where a purchase is completed and any LBTT is paid and the title is registered, there is no likelihood of change to the tax position.
Leases, however, often continue over a period of years and can be subject to change through, for example, variations, extensions, assignations, rent reviews and tacit relocation; therefore the tax position must be reviewed to give effect to these changes.
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, it requires that, unless the lease has been terminated or assigned, a further LBTT return must be submitted by the tenant at every third anniversary of the effective date of the lease (i.e. year 3, year 6, year 9 etc.) and any additional LBTT paid or overpaid LBTT reclaimed.
This is a change from the position for Stamp Duty Land Tax (SDLT).
These three-year LBTT 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.
This requirement applies equally to variations to leases treated as new leases under the Land and Buildings Transaction Tax (Transitional Provisions)(Scotland) Order 2014, as such returns are land transaction returns under section 29 of the LBTT Act 2013.
Note: These provisions do not apply to:
leases which have never been subject to LBTT (i.e. leases which were and continue to be subject to SDLT or Stamp Duty); or
leases which have been subject to LBTT but exempted from charge by virtue of full relief being claimed on the first LBTT return.
Further guidance on completing an LBTT review return in relation to the review of a lease, and the lease review date, can be found within the guidance below: