When Land and Buildings Transaction Tax (‘LBTT’) came into force on 1 April 2015 to replace Stamp Duty Land Tax on property transactions in Scotland, it brought with it a completely new regime of 3 yearly tax reviews for commercial leases.
Instead of a single return and, if applicable, payment of tax being made by a tenant at the start of a lease, LBTT requires a further return to be made every three years during the term of a lease (as well as on every occasion a notifiable lease is assigned or comes to an end).
The purpose of the 3 yearly reviews is to pick up and appropriately tax any changes to the rent or term of a lease made throughout its duration and reduce the opportunity to manipulate or reduce the tax liability by structuring the lease in a certain way. While this technically means that tenants may be entitled to refunds of tax in the event of rent reductions or early terminations, in the vast majority of cases there will either be no change or a further tax liability (most rent review provisions being upwards only).
The onus for submitting the 3 yearly returns rests with the tenant under the lease and there are penalties for late/ non submission and any failure to pay the tax due (starting at £100). It should be noted that a return still has to be made, regardless of whether there have been any changes in the intervening 3 years or not.
Revenue Scotland are currently sending out reminders to tenants ahead of their 3 yearly review dates, but have stressed that they are not obliged to do so and may not continue to do so in the future. They are also using the details provided at the outset, so tenants may miss reminders sent to previous addresses.
It is therefore important that, whether entering into a new lease or taking an assignation of an existing lease which was notifiable for LBTT, tenants diarise to make the further returns every three years and do not wait for a reminder to be received.
If you think you are coming up to a 3 yearly review date or have received a reminder that a further return is required, please get in touch with the MBM Commercial LLP and we’ll be delighted to assist you on a fixed fee basis.
Tel: 0131 226 8224