It’s been almost three years since the Land and Buildings Transaction Tax (LBTT) was introduced in Scotland, replacing Stamp Duty Land Tax (SDLT). From the beginning of this month the first cycle of three-yearly LBTT returns – payable to Revenue Scotland, the body responsible for the management and collection of Scotland’s devolved taxes – fell due.

Whilst the LBTT regime in many ways reflects its SDLT predecessor, there is one notable difference in relation to non-residential leases. Under LBTT, not only must a tenant submit an LBTT return to Revenue Scotland within 30 days of the ‘effective date’ (normally the date of entry), but they must also now submit subsequent returns at the following times:

  • Every three years from the effective date;
  • When an LBTT notifiable lease is assigned to a new tenant;
  • When an LBTT notifiable lease is terminated or renounced (there are caveats attached to conditions two and three; more detail here).

Three-yearly LBTT returns affect commercial tenants who entered into a lease on or after 1 April 2015 which was notifiable at the time for LBTT purposes. Pre-2015 leases can also be pulled into the LBTT regime if they have been varied after 1 April 2015 to extend their term. The requirement to submit the return applies throughout the term and the relevant date will always be the original effective date of the lease.

Tenants must submit the return to Revenue Scotland within 30 days of the third anniversary of the effective date and three-yearly after that until its expiry. Failure to submit the returns or late payment of any tax due will result in penalties, and interest. Penalties under LBTT are much higher than those charged under the SDLT regime.

If you entered into a lease or an assignation of a lease on or after 1 April 2015 and think you may be affected, please do not hesitate to get in touch with a member of our commercial property team.

Jennifer Murray is a solicitor in the commercial property team at Wright, Johnston & Mackenzie LLP.

Exceptions to LBTT

No three-yearly returns are required in the following circumstances:

  • Where the lease was not originally notifiable for LBTT purposes (for example, it was for less than 7 years at a rent that does not trigger LBTT liability);
  • Where the lease has never been subject to LBTT (i.e. leases which were and continue to be subject to the old SDLT or older Stamp Duty regimes); and
  • Where an LBTT lease enjoyed the benefit of full tax relief at the time of submission of the initial return (for example, where the lease enjoyed charities relief or group relief).