Tenants of commercial properties in Scotland – remember to submit your three-yearly lease review return

What is land and buildings transaction tax (LBTT)?

Land and buildings transaction tax (LBTT) replaced UK stamp duty land tax (SDLT) in Scotland from 1 April 2015. It is a tax that people or businesses pay on certain residential and commercial land and buildings transactions in Scotland. It applies when someone buys a residential or commercial property. It can also apply when a lease is granted for a non-residential or commercial property. Land and buildings transaction tax can also be payable or refundable during the course of a lease, if it is altered, assigned or terminated. The buyer or the tenant is responsible for paying the land and buildings transaction tax (LBTT) and submitting the land and buildings transaction tax (LBTT) return on time.

Land and buildings transaction tax (LBTT) is fully devolved to Scotland. The Scottish tax authority, Revenue Scotland, is responsible for collecting and administering the tax.

When do you have to submit a lease return?

You must submit a lease return if you are the tenant in respect of a notifiable lease. If your lease is notifiable, you must submit a lease return within 30 days of the day after the effective date of the transaction. The effective date is usually the date of entry or when the lease starts. If you owe any land and buildings transaction tax, you must pay that at the same time.

  Your lease may be notifiable, and you may have to submit a lease return, even if there is no land and buildings transaction tax to pay.

What is a notifiable lease?

You must notify Revenue Scotland about your lease, by completing and submitting a lease return if any of the following apply to the lease:

• Your lease is for less than seven years but tax is payable;
• Your lease is for seven years or more and the average annual rent is £1,000 or more;
• Your lease is for seven years or more and any payments other than rent (for example, premiums) are £40,000 or more.

There is detailed guidance on when a lease is notifiable or not on Revenue Scotland’s website.

How do you submit a lease return?

Your tax agent or solicitor will usually submit your lease return on your behalf. However, if you are not using an agent, you can contact Revenue Scotland to request a paper form. There is more information about when you can request a paper form on the Revenue Scotland website.

When do you have to submit a lease review return?

If you are the tenant of a notifiable lease, you must submit a further return to Revenue Scotland every three years – so, after three, six, nine years and so on. This is known as a lease review return. This means that you do not need to submit a return each time the lease changes. Unless you have assigned the lease to a new tenant or termination of the lease has occurred, you will submit a three-yearly lease review return, that will tell Revenue Scotland about any changes since the effective date of the lease or since the previous lease review date.

The deadline for submitting a lease review return is 30 days after the three-year anniversary date of the transaction.

Completing and submitting the lease review return enables you to review the amount of land and buildings transaction tax chargeable on the lease. You may have to pay additional land and buildings transaction tax or you may receive a refund if there have been changes to the lease. However, we understand that in the majority of cases, there is no change to the tax chargeable on the lease. This means there is no tax to pay and no tax refund due.

If you submit the lease review return online, the tax due will be calculated automatically as part of the return completion process.

If a payment is due, you should pay by the earlier of:

• Five working days after submission of the lease review return, or
• The filing deadline of the lease review return.

  You must submit a lease review return even if there have been no changes to the lease and even if there is no tax due.

What happens if you assign the lease to someone else?

If you transfer your interest under the lease to another party, you assign the lease. If this happens, you must submit an assignation return within 30 days of the date of the assignation.

If you submit the assignation return online, the tax due will be calculated automatically as part of the return completion process.

If a payment is due, you should pay by the earlier of:

• Five working days after submission of the assignation return, or
• The filing deadline of the assignation return.

The new tenant will take over the three-yearly lease review returns.

What happens if you terminate the lease?

If the lease is terminated, either early or on the original end date, you must complete a termination return. This is due within 30 days of the date of the termination.

If you submit the termination return online, the tax due will be calculated automatically as part of the return completion process.

If a payment is due, you should pay by the earlier of:

• Five working days after submission of the termination return, or
• The filing deadline of the termination return.

How do you submit a lease review return?

If you are the tenant of a notifiable lease, you can submit your three-yearly lease review return yourself using Revenue Scotland’s online portal for taxpayers. You can access the portal from the Revenue Scotland website.

The website lists the information you should have to hand before attempting to complete the return. The Revenue Scotland website also provides a helpful step by step guide to take you through the process of completing and submitting the lease review return.

What if you cannot use the online service for taxpayers?

If you cannot use the online service for taxpayers to submit your land and buildings transaction tax lease review return, you can either:

• Approach a solicitor or conveyancer who deals with leases to submit the form on your behalf. You can use the Find a Solicitor service on the website of the Law Society of Scotland to find a solicitor that deals with business premises, or
• Contact Revenue Scotland by email to request a paper form and the relevant guidance. There is more information about when you can request a paper form on the Revenue Scotland website.

What happens if you fail to submit a return or pay your tax on time?

It is your responsibility to complete and submit accurate land and buildings transaction tax returns on time. It is also your responsibility to pay any tax due on time.

If you fail to submit your lease review return or you fail to pay your tax on time, Revenue Scotland can charge you a penalty. You will also have to pay interest on the amount of any unpaid tax from the submission date until the date you pay the tax.

Revenue Scotland can charge you a minimum £100 penalty if you submit your lease review return late – even if you do not owe any tax.

Where can you find more information?

You can find general guidance about the following on Revenue Scotland’s website:

• land and buildings transaction tax (LBTT)
• lease transactions, rates and bands
• lease reviews, assignations and terminations
• submitting a lease return or review return
• land and buildings transaction tax penalties