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A reminder on three-yearly returns for leases under LBTT

A reminder on three-yearly returns for leases under LBTT

1 April 2018 is the third anniversary of the LBTT regime in Scotland and will also mark the start of the three yearly review cycle for leases which are within the LBTT regime.

You may have read our previous blog in respect of the tenant’s requirement under the Land and Buildings Transaction Tax (“LBTT”) legislation to submit further returns, on a three-yearly basis, throughout the period of a non-residential lease.

When does the return have to be submitted?

The return is to be submitted on each third anniversary of the “effective date” of the lease (being the “relevant date”). In most cases, the effective date of a lease will be the date of entry. Returns are to be submitted to Revenue Scotland within 30 days of the relevant date.

If there has been a change to the lease terms since the previous return was submitted, this may require a recalculation of the LBTT due, triggering a requirement for payment of further LBTT. Conversely, a tenant may be entitled to a refund if the recalculation shows that less tax is due.

Does the requirement to submit a return affect all leases?

Returns are only required for leases that were previously notifiable for LBTT purposes (due to the rent payable and the duration of the lease). This means there is no need to submit a return in respect of leases that were entered into under the SDLT regime, but which have not fallen within the LBTT regime. There is also no requirement to submit a return if the lease originally benefited from a full LBTT relief.

Tenants who have taken on an assigned lease should be especially wary as they will assume any obligations of the assignor to submit the three-yearly returns. Assignees should therefore ensure that they obtain all historical LBTT information as is required to submit future returns prior to the assignation.  The requirement to submit further returns will be linked to the original return date and not the date of the assignation.

The terms of the lease have not changed since I entered into the lease. Do I need to submit a return?

Yes, the requirement to submit the return applies irrespective of whether there has been any change in circumstances under the lease, such as a variation of rent or extension of term. Even if no additional tax is payable, the return must be submitted.

Will Revenue Scotland let me know if I am required to submit a return?

Revenue Scotland has been issuing reminder letters to tenants and the early indications are that they are issuing these letters two months prior to the review date of the lease.

Tenants must not rely on receiving reminders from Revenue Scotland as a failure to receive a reminder is not a valid excuse for non-submission of a return. There are penalties for late submission of returns, starting at £100 and rising to £1,000 as well as further penalties for late payment of any tax due.

How do I submit the return?

It is traditionally the solicitor’s role to submit an LBTT return on behalf of a client at the outset of the lease. However, Revenue Scotland is altering its online system to enable tenants to submit the three-yearly returns directly through the Revenue Scotland website.

The new online system is not live as yet. However, we have been given the opportunity to trial submission of three-yearly returns with Revenue Scotland. Whilst the three-yearly returns are relatively straightforward to populate and submit, the tenant (or their solicitor or other agent) will require information from the original return relating to the lease, such as the parties, duration and rent, as well as the “Net Present Value” (which is a figure which is calculated by reference to the term of the lease and the rent payable under the lease).

Unfortunately, Revenue Scotland’s new system does not provide a simple mechanism whereby a tenant can simply confirm that there has been no change to the lease terms or LBTT payable since the previous return was submitted. There will be a requirement to input all necessary information and submit the return.

What should I do?

Tenants should act now and review all of their Scottish non-residential leases, to ensure that they have proper administrative processes in place to monitor submission of three-yearly returns. Whilst it appears that Revenue Scotland will issue reminder letters which will provide assistance, the onus is on the tenant to comply with the legislative requirements.

Burness Paull can assist with reviewing your LBTT position and arranging for submission of three-yearly returns. If you have any queries, please do not hesitate to get in touch. 

By Stuart Gardiner
Senior Solicitor, Property

Burness admin