LBTT Leases and The Three Yearly Review
Date: 19/02/2018 | Commercial Property
1 April 2018 marks the third anniversary of Land and Buildings Transaction Tax (LBTT) replacing Stamp Duty Land Tax (SDLT) in Scotland. Whilst there have been a number of changes in the way tax is collected in Scotland, there is one particular change to be aware of in relation to the tax on commercial leases.
After an initial return is submitted under the “old” SDLT rules, a lease is not reviewed during the lease term. However, the tax position for a commercial lease which was subject to LBTT is reviewed every three years. As a result, tenants must submit a further LBTT return to Revenue Scotland on every third anniversary of the lease; even if there have been no changes to the lease in the previous three years.
For example, if there have been rent reviews, extensions to the term of the lease or variations in turnover rents in the previous three years, then there may be more LBTT due to Revenue Scotland and further payment will need to be made when the three yearly LBTT return is submitted. It may be that rents have decreased, e.g. if a turnover rent is lower in year 3 than was anticipated in the initial LBTT return or if the demise of the property let has been reduced, in which case any overpaid LBTT can be reclaimed.
Revenue Scotland will be issuing reminder letters to tenants in the lead up to the first three yearly review. Those reminders will be sent to the tenant’s address given in the initial return. If letters are returned as undelivered, Revenue Scotland will issue a letter to the property address to which the LBTT return relates. However, tenants should make a note of when these further returns are due, to ensure returns are submitted on time and not missed. Further returns need to be submitted to Revenue Scotland within 30 days beginning with the day after the review date. If returns are late or not submitted, there will be penalties due.
If you require any further information please contact our Commercial Property team.