We discussed the implications of LBTT on property sales and purchases in a previous blog, but the introduction of the new Land and Buildings Transaction Tax as a replacement in Scotland for Stamp Duty Land Tax will arguably have a greater effect on the commercial rental market (no LBTT will be payable on residential leases) as new rules regarding notification are introduced alongside new rates of tax for lease premiums.
As with property sales, the previous SDLT slab tax rates are being replaced by a progressive system (meaning there will be a lessening of the impact of passing the various thresholds). The rates of tax which will apply to leases from 1st April 2015 are:-
On rent - 1% of the ‘net present value’ of the lease over £150,000 (this is the same as the current SDLT rates)
On premiums - 0% up to £150,000
- 3% between £150,001 and £350,000
- 4.5% over £350,000
A calculator has been provided by Revenue Scotland to allow you to calculate the net present value of the lease and the LBTT payable- https://www.revenue.scot/land-buildings-transaction-tax/tax-calculator/lbtt-lease-transactions-calculator
The main difference between LBTT and SDLT when it comes to leases, however, is that while SDLT is generally calculated and notified only once when the lease is first entered into, LBTT is to be revisited every three years with balancing payments of tax being made as appropriate.
Penalties apply where a tenant fails to submit a tax return when they are required to do so and if tax is due, interest may also accrue. It is therefore important that you discuss with your lawyer the requirements when the lease is completed so that you can diarise to instruct a further return(s) to be submitted at the correct time.
If you have any questions about how the rule changes may impact on you, please contact a member of the MBM Commercial LLP Property Team