Assignation of a lease
Where a lease has been notified to Revenue Scotland and is later assigned, the assignor (the outgoing tenant) must make a further LBTT return to Revenue Scotland within 30 days of the day after the lease was assigned.
Note: The date on which the lease is assigned, is the ‘relevant date’ for the purposes of the ‘relevant date’ field in the LBTT return.
The LBTT return made by the assignor must include an assessment of the amount of tax chargeable reflecting any changes that have been made to the lease since the last return was submitted.
It is important to note that in the case of an assignation, the assignee (the new tenant) will be required to make an LBTT return on the three-yearly review date of the effective date of the original lease. This cycle does not start again upon assignation. For example, an assignation made in year two will still require a return in year three, unless the lease is terminated before then.
This requirement does not apply to leases which have been exempt by virtue of a full relief being claimed on the first return and the assignee is not eligible to claim this relief. The assignation is treated as being the grant of a new lease (see below). This 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where the relief in question is group relief, reconstruction relief, acquisition relief or charities relief and is withdrawn as a result of a disqualifying event occurring before the effective date of the assignation.
If an assignation occurs between parties where Schedule 17 is engaged (partnerships) and the sum of lower proportions reduces the chargeable consideration to nil, then an assignation return is not required for the lease transaction. This is because the original lease transaction would not have been notifiable. The rules applicable for lease transactions under Schedule 17 are found at Part 6.
Assignation of a Lease: Responsibilities of the Assignee
Where a lease is assigned the assignee (the new tenant) assumes the assignor’s (the previous tenant’s) duties in relation to LBTT. These rules are covered at LBTT(S)A 2013 Schedule 19, Paragraph 28. The following requirements to submit an LBTT return (or further LBTT return) apply to the new tenant:
- where contingency ceases or consideration is ascertained – see LBTT4021;
- in consequence of a later linked transaction – see LBTT4015;
- on every third anniversary – see LBTT6007;
- on assignation or termination of the lease – see LBTT6017;
- where a lease for a fixed term continues after the end of the term – see LBTT60024;
- in relation to a lease for an indefinite term – see LBTT6021; and
- where a transaction becomes notifiable because of a variation to rent or term – see LBTT6029.
Anything previously done by the previous tenant in relation to the lease is to be treated as if it was done by the new tenant. See LBTT6009 for guidance on the review of a lease, which was originally notified and is later assigned or terminated.
This rule does not apply if the assignation of the lease is treated as the grant of a lease by the assignor, see below.
The incoming tenant does not have to submit three yearly lease review returns if the assignation is not notifiable.
The assignor is liable for LBTT in the pre-assignation period. The assignee is liable for LBTT in the post-assignation period. Depending on the facts and also the time that has passed, it may be for the assignee to contact the assignor to make them aware.
If there is LBTT which was payable in the pre-assignation period but hasn’t been paid at the time of assignation, that is a live debt and remains the responsibility of the outgoing tenants.
Where the additional LBTT arises because of changes to the rents for the pre-assignation period which only emerges post-assignation, the new tenant will be liable for any additional LBTT payable on the lease. The new tenant and outgoing tenant should confirm all obligations and amounts of tax declared are correct and up-to-date when the assignation was agreed, as well as taking into account any amount of premium payable for the assignation transaction. The additional amounts would show on the 3-yearly review return.
If the incoming tenant pays for the assignation, they will have to submit an LBTT conveyance return where the level of premium means that the acquisition is notifiable.
Any artificial arrangements concerning partnership transactions are likely to fall foul of the Scottish General Anti-Avoidance Rule (see RSTP8001) even where the schedule does not contain a specific Targeted Anti-Avoidance Rule (TAAR) for the relevant transaction.
Assignation of a lease treated as the grant of a lease
Rules covering circumstances where the assignation of a lease is treated as the grant of a lease are found at LBTT(S)A 2013 Schedule 19, Paragraph 27.
Where one of the following tax reliefs was claimed on the grant of a lease:
- sale and leaseback relief – see LBTT3011;
- relief for alternative finance investment bonds – see LBTT3021;
- group relief – see LBTT3025;
- reconstruction relief or acquisition relief – see LBTT3029;
- charities relief – see LBTT3035; or
- public bodies relief – see LBTT3040,
and the lease is assigned to a different tenant and none of those tax reliefs would apply, then the assignation is treated as the grant of a new lease by the assignor for the remaining term of the lease and on the terms agreed to by the assignee.
This rule does not apply where group relief, reconstruction relief, acquisition relief or charities relief was claimed on the grant of the lease but has been withdrawn as a result of a disqualifying event prior to the effective date of the assignation. A disqualifying event means:
- in relation to the withdrawal of group relief, the event falling within paragraphs 14 and 15 of schedule 10 (purchaser ceasing to be a member of the same group as the seller), as read with paragraphs 32 to 40 of that schedule,
- in relation to the withdrawal of reconstruction relief or acquisition relief, the change in control of the acquiring company mentioned in paragraphs 13 and 14 of schedule 11 or, as the case may be, the event mentioned in paragraphs 22 to 24 or 25 to 28 of that schedule,
- in relation to the withdrawal of charities relief, a disqualifying event as defined in paragraph 5 or 6 of schedule 13.
Filing and payment on assignation
The date the LBTT return must be filed is within 30 days of the assignation date. If more tax is payable, payment of the additional tax must be made at the same time as the LBTT return is made.
If less tax is payable at the date of the assignation then a claim for repayment of tax should be submitted in the LBTT return. For example, a repayment may arise because rent reviews or turnover rents turned out to be less than had previously been estimated.
An LBTT return must still be submitted even if there have been no changes to the lease since the last return was submitted.
The effective date of a 10-year lease of a shop let for rent of £10,000 per annum is 1 November 2015. The net present value (NPV) is calculated using the £10,000 payable in each of the 10 years.
Whilst the NPV does not result in any liability to tax the transaction is still notifiable and an LBTT return was submitted by Tenant A.
On 1 August 2017, the lease was assigned to Tenant B. At the point the lease is assigned Tenant A must complete a return to reflect any changes that have been made to the lease since the last LBTT return was submitted. This return must be submitted no later than 31 August 2017.
The obligation to file LBTT returns and pay any tax now passes to Tenant B. The return made upon assignation does not affect the cycle in which three-yearly review returns are due. The date of the next three-year review return will be 1 November 2018, the third anniversary of the effective date of the lease. Tenant B must make this review return no later than 1 December 2018.
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.
The net present value (NPV) is calculated to be £706,911.45.
The NPV amount is over the non-residential threshold of £150,000, therefore LBTT is charged at the current rate of 1% on the amount above £150,000 and the LBTT due is £5,569.
Tenant A submitted an LBTT return and paid £5,569 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 (outgoing tenant), 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 assigned or 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.