Three-year review – no further tax payable

Worked example for LBTT6014 – Three-year review of the tax chargeable.

A production company enters a 5-year lease of a factory for a rent of £50,000 per annum. The effective date of the transaction was 01 December 2015. The Net Present Value (‘NPV’) is calculated using the £50,000 payable in each of the 5 years.

The NPV was calculated as £225,752.62. The agent for the tenant submitted a LBTT return and a tax liability of £757 was paid based on the NPV.

The date of the first three-year review will be 1 December 2018, that being the date of the third anniversary of the effective date of the lease. A review return must be submitted no later than 31 December 2018.

The tenant must recalculate the NPV using the actual rent payable for the first three years along with the projected rent for the remaining term. The effective date for the purposes of the review return will be the effective date of the original lease transaction. The relevant date will be the third anniversary of the effective date of the original return.

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 recalculated NPV remains at £225,752.62 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.

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