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3 Yearly LBTT Returns - Traps for the Unwary

Most tenants of commercial property will now be familiar with Land and Buildings Transaction Tax (LBTT) in Scotland which replaced Stamp Duty Land Tax (SDLT) which applies within the rest of the UK.  

Most tenants of commercial premises are aware (depending on the length of the lease and the rent payable) that an LBTT Return to Revenue Scotland should be made and LBTT paid at the point of entering into the lease. Many tenants, however, may not be aware that an LBTT Return may also be required to be submitted after three years or where the initial rent has been increased.   

The Three Yearly Return
An LBTT Return should be submitted on the third anniversary (or within 30 days thereof) of the “effective date” which will normally be the date of entry. LBTT came into force on 1 April 2015. The first cycle of three yearly returns will therefore begin on 1 April 2018.
 
Because leases can change over a period of years e.g. by variation, extension, assignation, rent reviews etc. tenants are required to bear in mind that the three yearly Return may result in an additional payment of LBTT falling due. 

Not every commercial tenant will require to complete the three yearly Return. As a rule of thumb, if LBTT was payable at the commencement of the lease a three yearly Return will be required. Returns are not required where:- 

(a) Entry under the lease predates 1 April 2015 and SDLT was payable at the time (these leases do not fall within the LBTT Scheme). 

(b) Leases are not notifiable for LBTT (usually where there is a short lease with a low rent). 

(c) Where full LBTT relief applies (e.g. for Charities or group relief). 



Assignation of Lease

Tenants who have taken on assignations of leases need to be particularly careful. The new tenant assumes the responsibilities in relation to LBTT. This means that a three yearly Return may require to be made based on the original date of entry. In addition, where there have been variations of rent under the lease the new tenant may be liable for additional LBTT at the point the three yearly Return is submitted. 

Reminders 

It is expected that Revenue Scotland will send out three yearly reminders to tenants which will be helpful. However, the onus will be on the tenant to submit the appropriate Return and tenants should not rely on receiving reminders. 

Penalties 

Since LBTT came into force there have been penalties imposed for late submission of Returns. This will include the three yearly Returns and applies even where no further tax is due. Penalties for failing to submit the Return timeously start at £100 and can increase to £1,000. There may also be penalties for late payment of LBTT.   

Diary Forward 

All tenants should make sure that they have diaried forward to complete and submit an LBTT every 3 years as appropriate. 

Disclaimer 

The above is intended as guidance only and is not legal advice. If you require further information or advice please contact Alistair Duncan (telephone 01382 200000 or email alistairduncan@millerhendry.co.uk) or James Andrew (telephone 01738 637311 or email jamesandrew@millerhendry.co.uk). 



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