17 Jan 2019

As a commercial tenant in Scotland, you may have a requirement to submit a Land and Buildings Transaction Tax (LBTT) return every three years for the duration of the lease.

Background

Commercial leases can extend over many years and during that time the terms, parties and rental income pertaining to the lease can change. For this reason, Revenue Scotland requires a triennial (recurring every three years) tax return for commercial leases that have fallen within the scope of Land and Buildings Transaction Tax, or LBTT.  Through this means the tax authority is able to recover further tax and maintain an up to date data base on property transactions. 

This aspect of taxation having become a devolved matter from the UK Parliament, Revenue Scotland duly introduced the Scottish equivalent of Stamp Duty known as LBTT in April 2015. This means that the requirement for commercial tenants to submit a triennial return for leases first arose three years from that time (April 2018).

The triennial return

The triennial return requires provision of information on the amount of the rent actually paid over the previous three years, as well as the provision of an updated forecast for rent for the next three years. Initial rent forecasts when the original LBTT return was made as well as changing circumstances in the commercial real estate market, mean that the rent actually paid may be at odds with the rent initially forecasted and the tax assessed as payable at the beginning of the lease. The end result is that after submission of the triennial return, more tax may be owed or due to be refunded back to you by Revenue Scotland.

The triennial return must be made within 30 days of the review date, which is generally the third anniversary of the effective date of the original transaction. A return must be made even if there have not been any changes to the lease. Unfortunately, failure to submit a triennial lease return within 30 days will lead to a penalty of £100, with further penalties arising thereafter. Revenue Scotland has garnered over £1 million in penalties since 2015.

Reminder notices

During this first cycle for the requirement of these returns, Revenue Scotland has been sending out reminder notices to commercial tenants in Scotland where leases are coming up to their review date. However, the Scottish tax authority has intimated that such notices of reminder will not be provided for the following cycle. It is therefore important to maintain a diary system to ensure that as a tenant you comply with your reporting requirements in good time.

Womble Bond Dickinson (UK) LLP would be delighted to guide you through this process and submit these returns on your behalf so please do get in touch.