Whilst Land and Buildings Transaction Tax (“LBTT”) in Scotland is broadly similar in nature to Stamp Duty Land Tax (“SDLT”) which applies within the rest of the UK, there are some key differences between the two regimes. This is perhaps most apparent in relation to non-residential leases, whereby there is a requirement under LBTT for a tenant to submit returns on a three-yearly basis throughout the period of the lease (in addition to when a lease is assigned or terminated).
When does a return have to be submitted?
The return is to be submitted on the third anniversary of the “effective date” of the lease (being the “relevant date”). Broadly speaking, the effective date of a lease will usually be the date of entry. LBTT came in to force on 1 April 2015 and so we are now less than 6 months away from the first cycle of three-yearly returns being triggered on 1 April 2018.
Returns are to be submitted to Revenue Scotland within 30 days of the relevant date. 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. However, variations to a lease within the three year period may lead to there being more tax payable (or potentially a refund of tax due).
Does a return have to be submitted for all leases?
The need to submit three-yearly returns only applies to previously notifiable LBTT leases, so there is no requirement to submit returns for leases which are not notifiable for LBTT purposes (due to the rent payable and the duration of the lease) or leases which were originally SDLT leases and which have not yet fallen within the LBTT regime. There is also no need to submit a three-yearly return where the tenant initially benefited from a full LBTT relief, such as charities relief or group relief.
What about leases that have been assigned?
Tenants who have taken on assignations of leases should also be aware that an assignee assumes the assignor’s responsibilities in relation to LBTT, so it is the original effective date of the lease that is applicable for the purposes of determining the date for submission of the three yearly return rather than the date of assignation. Particular care should be taken where there have been variations of rent under a lease since a previous LBTT return was submitted, as an assignee may become subject to additional tax liabilities at the point the three yearly return is submitted.
What will the return look like?
As yet, there is no finalised form of return which tenants will be required to submit to Revenue Scotland. This is not particularly helpful, but it is hoped that the return will be simple to complete and submit so as to help aid compliance.
What are the penalties for failure to comply?
There are penalties for late submission of the three-yearly returns. This applies even if no further tax is due. The initial penalty is £100 for failing to submit the return on time, although this can increase to around £1,000 after six months. There will also be penalties for late payment of tax.
Will Revenue Scotland issue reminders?
Happily, and contrary to previous suggestions, Revenue Scotland has indicated that it will send out reminders to tenants of the obligation to submit the three-yearly return. It has been stated that these reminders will be sent out three months prior to the relevant date, with a further reminder to follow in due course. A failure to receive a reminder will not, however, constitute a valid excuse for failing to submit a return on time, so tenants need to remain vigilant and ensure that they are complying with the requirements without placing reliance on receiving reminders from Revenue Scotland.
Ensure systems are in place to aid compliance
Unfortunately, there is no getting around the requirement to submit a three-yearly return. It is a clear departure from SDLT in the rest of the UK and will take some getting used to. The responsibility for ensuring compliance rests with the tenant. If not already in place, tenants should ensure that they diarise and have proper administrative processes in place to monitor submission of three-yearly returns going forward.