From 1 April 2015 the Land and Buildings Transaction Tax (“LBTT”) regime came into effect imposing a duty on commercial tenants to submit a return every three years. The first cycle of these three yearly returns arose in April 2018, and significant penalties can be incurred for late submission or failure to submit.
A return must be submitted to Revenue Scotland on the third anniversary of the effective date of the lease which is usually the date of entry (the “filing date”). This return must take into account any LBTT that has become payable on account of changes to a lease, such as the rent or duration, since the last return was made.
If the original lease was entered into under the old Stamp Duty Land Tax (SDLT) regime then there is no obligation to submit a three-yearly return. It will only affect new leases entered into from 1 April 2015. If you are unsure whether your lease is under the old SDLT or the new LBTT regime it would be prudent to check to avoid incurring any penalties.
A separate LBTT return must be made within 30 days of the assignation or surrender of a lease, and this is in addition to the three-yearly return. Upon assignation, the assignee inherits all of the assignor’s responsibilities to pay LBTT and to submit the relevant returns. Therefore, it is crucial that incoming tenants check that the outgoing tenants have complied with their LBTT obligations and make themselves aware of any assumed reporting responsibilities.
If the return is not submitted within 30 days of the filing date fixed penalties will start to accrue, and this can be expensive. Within a year of the filing date as much as £1,600 could be payable in penalties.
Review current lease paperwork, diarise well in advance of the filing date and take professional advice if necessary to make sure the correct tax is paid so as to avoid any penalties.