Land and Buildings Transaction Tax (LBTT) replaced Stamp Duty Land Tax (SDLT) on transactions involving land in Scotland from 1 April 2015. The LBTT regime for leases is significantly different from the SDLT regime. Revenue Scotland (the Scottish Tax Authority) is administering LBTT in Scotland - HMRC have no jurisdiction over LBTT, and LBTT lease returns have to be notified to Revenue Scotland.

LBTT is only chargeable on non-residential (commercial and agricultural) leases – leases of residential property are exempt from LBTT. It should be noted that leases of 6 or more residential properties, student accommodation, care homes and similar buildings are treated as non-residential leases, and LBTT is therefore chargeable on these.

Is LBTT more than SDLT?

LBTT on rent is charged at 1% of the net present value (NPV) of the lease rentals (including VAT if payable) that exceed the available lease nil rate band (currently £150,000). The rate of SDLT for leases granted or agreed before 17 March 2016 is the same.

However, Budget 2016 raised SDLT on high value leases with the introduction of a 2% band taking effect from 17 March 2016 (subject to transitional rules). The 2% band applies to the amount of the NPV exceeding

£5,000,000, however the amount of NPV between £150,000 and £5,000,000 is still taxed at 1%.  There is therefore is no difference between the SDLT and LBTT on the rent where the NPV is below £5,000,000.

In additional to the rates difference, the method of calculation is different between LBTT and SDLT. SDLT is based on the rent for the first five years of the lease, with the highest rent in the first five years being used for year six onwards. Rent increases after year five are ignored for SDLT.

For LBTT the NPV is based on the rent payable across the whole term of the lease. LBTT returns have to be made every three years and the NPV recalculated. If more LBTT is payable, this has to be paid to Revenue Scotland, and if less a refund can be claimed. This means that if there are rent increases after year five, additional LBTT will be payable, and if the rent decreases some LBTT may be recovered.

Because LBTT is based more closely on the rent actually payable under the lease, in some cases the LBTT will be more than SDLT would be for a lease with similar rents, particularly on leases to which the SDLT 2% band does not apply. This is because SDLT ignores the rent actually payable after year five, so if the rent increases after year five, the LBTT payable will be more than the SDLT would have been. Although most of the LBTT is

payable when the lease is granted, there can also be additional payments of LBTT every three years. This is quite different from the position for SDLT where there is generally only a single payment of LBTT when the lease is granted or the tenant takes entry.

A calculator is available on Revenue Scotland’s website at the following link:- buildings-transaction-tax/tax-calculator/lbtt-lease-transactions-calculator

Where a premium is paid by the tenant, LBTT or SDLT are also payable on the premium (plus VAT if VAT is chargeable) at the rates which apply to purchases of land. Under the new commercial rates of SDLT (also applicable from 17 March 2016), SDLT will broadly exceed LBTT on lease premiums above £150,000.

When is LBTT payable on leases?

The effective date on which LBTT becomes payable on a lease transaction is the earliest of the following:

  • the date on which first payment of rent is made;
  • the date on which the tenant takes entry to the property; and
  • the last date of signing of the lease.

This is similar to the position for SDLT. However, the payment arrangements are different. The LBTT has to be paid, or arrangements satisfactory to Revenue Scotland must be made to pay when the LBTT return is made. It is not possible to submit the return and pay the tax later, as is the case with SDLT.

If the rents change, for example because of rent reviews or because the rents are indexed, or based on turnover, additional LBTT payments also have to be made every three years

When does a lease have to be notified to Revenue Scotland?

Every lease must be notified to Revenue Scotland unless the lease is:

  • a residential lease; or
  • for a term of 7 years or less and there is no LBTT payable; or
  • for a term of more than 7 years but any premium does not exceed £40,000 and the annual rent does not exceed £1,000 per annum.

Initial LBTT return

Generally, the initial LBTT return for a lease has to be submitted within 30 days of the effective date. When completing the initial LBTT return, the Net Present Value (NPV) is based on the estimated annual rent for each year of the lease. It is essential to keep a record of each NPV computation (including a copy of the NPV computation from the Revenue Scotland calculator), the rents on which they were based, and details of any variations to the lease in order to complete each three yearly LBTT returns.

LBTT further returns

Following the initial LBTT return, further returns have to be submitted to Revenue Scotland:-

  • every three years;
  • when the lease is assigned; and
  • when the lease terminates for any reason, including when the lease expires, as well as if it is renounced or irritated (forfeited).

Although returns have to be submitted more regularly under LBTT, the returns themselves and the rules governing them are simpler. The LBTT return requires very little information in relation to the lease – there is no requirement to include the non-tax related details which are required for SDLT lease returns. The further LBTT returns take into account any changes in the amount of rent payable and any variations in the lease to extend the term or to increase the area, and leases continuing by tacit relocation.

Each time a further return is made the LBTT payable for the lease must be recalculated. The LBTT    computation for further returns is based on the LBTT rates and bands in force at the effective date of the  lease (i.e., at the time the lease is granted, the first rent is paid or entry taken). If additional LBTT is due, a payment has to be made to Revenue Scotland. If the recalculated LBTT is less, a repayment can be requested.

The additional LBTT returns have to be submitted even if there has been no change in the rent and no additional LBTT is payable.


Unlike SDLT, the variation increasing the term or the rent of a lease subject to LBTT is not treated as the grant of a new lease. Instead, the effect of the variation on rents is accounted for in the further LBTT returns for the lease.

If any premium is payable for the variation, a separate LBTT return – for the premium only - may be required when the variation is entered in to.


Where a lease is assigned, the outgoing tenant has to complete an LBTT return and pay any additional LBTT  to Revenue Scotland. The incoming tenant assumes responsibility for future three yearly returns in relation to the lease. It is likely that the incoming tenant will require the outgoing tenant to warrant that all LBTT due by the outgoing tenant has been paid and to provide details of the LBTT returns submitted and the NPV calculations in order to allow the incoming tenant to deal with future returns.

If a premium is paid by the incoming tenant, they may also have to submit an LBTT return and pay LBTT depending on the level of the premium.


When a lease is renounced, the tenant is required to submit an LBTT return relating to the lease to Revenue Scotland and to pay any additional LBTT due. In addition, if a premium is paid by the landlord for the renunciation, LBTT may be payable by the landlord on the premium (plus VAT if the tenant has opted to tax). If a premium is paid by the tenant to the landlord, a reverse premium, no LBTT is payable by either the landlord or the tenant in relation to the premium.

Transitional arrangements

In very brief and general terms, we note below which tax may be payable under the transitional arrangements for some lease transactions which straddled the implementation date of 1 April 2015. Reference to conclusion of missives includes entering into an agreement for lease.

  • Missives concluded before 1 May 2012 and not varied or assigned – SDLT
  • Missives concluded and lease signed before 1 April 2015  – SDLT (LBTT may become payable if the lease is assigned or it is varied to increase the term or rent)
  • Missives concluded before 1 April 2015 but formal lease signed on or after 1 April 2015 – LBTT
  • Missives concluded, entry taken or rent paid before 1 April 2015 but lease signed on or after 1 April 2015, potentially SDLT and LBTT
  • Extensions and variations of SDLT and stamp duty leases after 1 April 2015 - LBTT
  • Missives concluded and lease signed after 1 April 2015 - LBTT

The transitional rules relating to leases are complex. Specialist advice should be taken to establish which tax is payable.