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Paper, Cotton, Tax Return – Leases and the three-year anniversary of LBTT

15th February 2018

It has now been almost three years since the Land and Buildings Transaction Tax (Scotland) Act 2013 came into force, replacing Stamp Duty Land Tax in Scotland for all transactions post-April 2015.

As 1st April 2018, and the third anniversary of the introduction of LBTT, approaches, tenants must be aware of their requirements to submit an additional ‘Three-Year Return’. Should a tenant fail to submit, they will be subject to various Revenue Scotland penalties.

The Three-Year Return

LBTT legislation initially treats leases the same as individual property transactions. However, a lease is a prolonged relationship between transacting parties. Revenue Scotland accounts for this by requiring another LBTT return be submitted every three years on the anniversary of the effective date of the lease.

Returns must be submitted for all notifiable leases regardless of whether terms have been reviewed. Failure to submit within 30 days of the anniversary of the effective date will result in an automatic penalty of £100 (which can run to a cumulative total of £1,000), a late payment of additional tax penalty, or both.

There are some exceptions. Three-Year Returns are NOT required for:

  • Leases which were not previously notifiable for LBTT (e.g. rent did not meet the threshold for notification/duration was not long enough to be notifiable).
  • Leases which were originally taxed under SDLT and which have not yet fallen in with the LBTT regime.
  • Leases where the tenant originally benefitted from a full LBTT relief (e.g. charities/group relief).

If there has been an assignation of a lease, both assignees and assignors should be especially careful. While the assignor will be liable for a return on the date of the assignation, the assignee will be responsible for the Anniversary return. It is not the date of their assignation which will be the relevant date for the Three-Year Return, but the original effective date of the Lease.

Save The Date

* The tenant is responsible for a Three Year LBTT Return to be submitted within 30 days of the anniversary date.

* Returns must be made for all leases, regardless of whether a variation has taken place, unless they were originally exempt from LBTT.

* Assignees under a lease will be responsible for a return to be made on the third anniversary of the original effective date of the lease, NOT the date of assignation.

The Commercial Real Estate team at Morisons LLP has significant experience in acting for both landlords and tenants in leasing transactions and LBTT matters. For more information and advice on submitting your Three Year Return, contact a member of our team on 0141 332 5666.

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