LBTT Refunds – A Reminder
At a time when there is an increase in tenants exercising break options or negotiating an early release from their lease it is worth remembering that tenants may be entitled to a refund of Land & Buildings Transaction Tax (LBTT).
With the introduction of LBTT in Scotland back in April 2015, this is making it more and more likely that such leases were notified under the LBTT regime rather than the replaced Stamp Duty Land Tax regime.
A lease which was notified to Revenue Scotland for LBTT purposes requires a further LBTT Return to be submitted to Revenue Scotland every 3 years and on termination of the lease (whether that is as a result of the termination on the original expiry date or early termination). This is to inform Revenue Scotland of any changes to the lease and pay any additional tax or reclaim any tax overpaid.
If tax was paid on a lease which is terminated earlier than notified in the original LBTT Return, e.g. as a result of the exercise of a break option, a fresh calculation is made based on the actual term of the lease and actual rent paid. It will depend on the circumstances but it is more likely that an early lease termination will result in an overpayment of tax having been paid and the tenant being entitled to reclaim that overpaid tax amount. By way of example, for a 10 year lease entered into in January 2016 at a rent of £100k plus VAT, LBTT of £8,479 will have been payable. If the lease is terminated early after 5 years (without any changes having been made to the rent), this would result in a LBTT refund of £4,561 being due.
If you need any advice on LBTT, leases or any other Commercial Property related matters, please contact a member of the team.