On 1st April, we’ll see the third anniversary of the introduction of the Land & Buildings Transaction Tax (LBTT). When it was introduced, much of the focus was on the tiered nature of the tax and its progressive approach. However, slipping just under the radar and missed by the headline makers was the way in which commercial leases are dealt with under LBTT. If you entered into a commercial lease on or after 1st April 2015, then, unless your lease is exempt (of which there are very few), you’re likely to have to make a LBTT Return on the third anniversary of the “effective date” (which is likely to be the date of entry under your lease).
When introduced, the LBTT legislation took the view that the tax applied to commercial leases would be based on “Net Present Value” when first created and then reviewed over time. This means that, initially, the amount of rent is multiplied by the length of the lease and then the tax is paid on that sum – if the total value is below £150,000, no tax is payable. If it’s above £150,000, the tax payable will be 1% of the difference between £150,000 and the Net Present Value calculated. You also need to be aware, if you pay a premium for the lease, this is also subject to LBTT. Finally, it’s the tenant’s responsibility to make the LBTT Return. You can access the LBTT Return Calculator on the Revenue Scotland website by clicking here.
As we’re now approaching the third anniversary of the introduction of this tax, we’ll begin to see leases where there needs to be a LBTT Return made. Please be aware, this is the tenant’s responsibility to submit a LBTT return – not the landlord’s, not the tenant’s solicitor’s but the tenant’s responsibility.
It is also important to note that a LBTT Return will have to be submitted if the lease is assigned to someone else or if there is a variation to the lease. Again, it’s the tenant’s responsibility to make that return.
If a tenant fails to make a return within 30 days of the “effective date”, a penalty will be applied by Revenue Scotland. In addition, if the tax isn’t paid within 30 days of the LBTT assessment being made following the submission of a Return, then a penalty will be applied to that as well.
There is a wealth of information on the Revenue Scotland website that you can access by clicking here and a useful information leaflet you can read or download by clicking here.
If we can be of assistance, please call us on 0800 005 1755 or email us now to get in touch.