Land and Buildings Transaction Tax came in to force in Scotland on 1st April 2015, replacing the Stamp Duty Land Tax.
The tax treatment for leases is quite different from that of the purchase of land and buildings. In a straightforward purchase transaction, an LBTT return will be submitted, if required, following completion and any tax due will be paid. Its unlikely there would be any need to do anything further.
However, due to the nature of leases, the tax payable is reviewed more often. Leases can change over time, by virtue of assignations, variations or extensions. The rent is often reviewed over time and leases often carry on for prolonged periods of time.
Further to the initial return, in terms of the Land and Buildings Transaction Tax (Scotland) Act 2013, future tax returns require to be submitted within 30 days of the following:
- Every third anniversary of the relevant date;
- The lease being assigned; and
- Termination of the lease.
It is the tenant’s responsibility to submit the further returns and pay any tax due. This responsibility exists even in situations where no tax is payable. If the lease is assigned, the party who is assigning the lease is liable to make the further return and thereafter it is the responsibility of the new tenant.
The first 3 year review date under the 2013 Act fell on 1st April 2018. Late returns are subject to penalties and failure to submit a return on time will result in a £100 fixed penalty. The penalties that may be imposed if your failure to make a return continues for 3 months or longer are much more significant and, depending on the amount of tax due, can be substantial.
The further returns are required to determine whether too much or too little tax has been paid and therefore the LBTT payable must be recalculated, taking into consideration any changes in the rent. It is recalculated based on the rates in force at the beginning of the lease and therefore you will not be caught out by any increases in rates during the duration of the lease.
If you would like more information, or think you may require to submit a further LBTT return, please do not hesitate to contact Gillian MacNulty in our Kirkcaldy office or Tom Macaskill in our Leven office.