The rules applicable to leases are modified where the buyer in a lease transaction is a company and:-
- the seller is connected with the buyer; or
- some or all of the consideration for the transaction consists of the issue or transfer of shares in a company with which the seller is connected.
The buyer may be:
- the tenant on the grant of a new lease;
- the landlord in the case of termination; or
- the assignee on assignation.
If the buyer is a company connected with the seller, the chargeable consideration is taken to be at least equal to the market value of the subject matter of the transaction plus the actual rent payable if the transaction is the grant of a lease. This is covered at LBTT(S)A, Section 22(2).
The meaning of market value is covered at LBTT2016 - Meaning of market value | Revenue Scotland.
This is subject to the same exceptions as apply to other connected party transactions.
Where the rent charged on the grant of a lease is less than a full market rent, it is assumed that the market value premium payable would take account of the lower rent. The premium would be chargeable as a consideration other than rent. Therefore, the assumed market value premium is subject to LBTT in addition to whatever rent is actually paid.
Ronald grants to his family trading company, RMM Ltd, a ten-year lease of a garage on his land, for use as a storage facility.
The lease is at a flat rent of £2,000 per annum over the lease term. The NPV of rent over the life of the lease is below the nil tax rate threshold. However, the market rent would be £5,000 and a lease at the actual rent would require a premium of £15,000.
As the yearly rent is £1,000 or more, there is no nil-rate band for the premium and the premium would be chargeable.
Where rent is charged at the market value there is no deemed premium, and if the NPV of the rent is below the nil rate band, no LBTT would have been payable. However, an LBTT return may still be required.