Jennifer Murray of Wright, Johnston & Mackenzie (WJM) writes on upcoming submission requirements for Scotland’s stamp duty replacement.
From 1st April 2018, the first cycle of 3 yearly LBTT returns will start to fall due.
It’s been almost 3 years since the Land and Buildings Transaction Tax (LBTT) was introduced in Scotland. LBTT came into force on 1st April, 2015 to replace Stamp Duty Land Tax (SDLT) and is payable to Revenue Scotland, the body responsible for the management and collection of Scotland’s devolved taxes.
Whilst the LBTT regime in many ways reflects its SDLT predecessor, there is one notable difference in relation to non-residential leases. Under LBTT, not only must a tenant submit an LBTT return to Revenue Scotland within 30 days of the “Effective Date” (normally the date of entry), but they must also now submit subsequent returns at the following times:
- Every 3 years from the Effective Date;
- When an LBTT notifiable lease is assigned to a new tenant *; and
- When an LBTT notifiable lease is terminated or renounced**.
*The outgoing tenant must make a further LBTT return to Revenue Scotland within 30 days of the date following assignation of the lease. This return must take account of any changes that have occurred since the previous return was submitted (i.e. either the first return or the return made at the previous 3 year review).
**The tenant at the point of termination must make a further LBTT return to Revenue Scotland within 30 days of the day after the lease is terminated. The return must take account of any changes that have occurred since the previous return was submitted (i.e. either the first return or the return made at the previous 3 year review).
Who does this affect?
3 yearly LBTT returns affect commercial tenants who have entered into a lease on or after 1st April 2015 which was notifiable at the time for LBTT purposes. Pre-2015 leases can also be pulled into the LBTT regime if they have been varied after 1 April 2015 to extend their term. The requirement to submit the return applies throughout the term and the relevant date will always be the original Effective Date of the lease.
Tenants who have taken an assignation of such a lease will still have to submit a return every 3 years after the Effective Date as they take on the position of the tenant under the lease and in turn their responsibilities. The Effective Date will again remain the same; the date of the assignation has no impact on this.
No 3 yearly returns are required in the following circumstances:
- Where the lease was not originally notifiable for LBTT purposes (for example, it was for less than 7 years at a rent that does not trigger LBTT liability);
- Where the lease has never been subject to LBTT (i.e. leases which were and continue to be subject to the old SDLT or older Stamp Duty regimes); and
- Where an LBTT lease enjoyed the benefit of full tax relief at the time of submission of the initial return (for example, where the lease enjoyed charities relief or group relief).
When does the return have to be submitted?
Tenants must submit the return to Revenue Scotland within 30 days of the 3rd anniversary of the Effective Date and 3 yearly after that until its expiry. Whilst the Effective Date is usually the date of entry under the lease this is not always the case. The correct date can be found on the original acknowledgement from Revenue Scotland following submission of your first LBTT return for the lease.
How do you submit the return?
Unfortunately, Revenue Scotland has yet to produce the form for the submission of these returns. We expect it to be a shorter form of the original return and that you will be able to submit them on paper, by post or online.
Failure to submit the 3 yearly returns or late payment of any tax due will result in penalties, and interest being charged.
Penalties under LBTT are much higher than those charged under the SDLT regime. Failure to submit a return by the “filing date” (i.e. within the initial 30 day period of the due date), will incur a £100 penalty. If the return is not submitted within a further period of 3 months, an additional penalty of £10 per day is chargeable for every day the submission remains late for a period of up to 90 days after that. This means that you could potentially be charged up to £1,000 in penalties if you don’t submit your return within 6 months.
- Jennifer Murray is a solicitor in the commercial property team at Wright, Johnston & Mackenzie (WJM). View her profile here.