Commercial tenants in Scotland must file LBTT returns every three years. Failure to do so will result in penalties.
From 1 April 2015, stamp duty land tax (SDLT) was replaced in Scotland with the Land and Buildings Transaction Tax (LBTT). Under LBTT even the most straightforward lease has multiple tax and filing points, including a requirement to file a return every three years. These triennial review dates will begin to fall due from 1 April 2018. For those with multiple rental leases, LBTT compliance will need to be carefully managed to ensure that filing dates are not missed. As review dates are not linked to registration, there will be no trigger and late filing penalties will apply even where no additional tax is due.
Before 1 April 2015 all land transactions in Scotland were subject to SDLT. Both LBTT and SDLT charge new leases on any upfront premium and on the net present value (NPV) of the VAT-inclusive rent payable over the life of the lease (in excess of £150,000).
However, the NPV used for SDLT is based on the rent payable in the first five years of the term of the lease. The rent for later years is assumed to be the highest amount paid in years one to five, with a requirement to true-up the NPV at the end of year five only if the rent is variable. But for LBTT, tenants must true up the NPV every three years, if the lease is assigned and when it ends. An LBTT return must be filed, even if the NPV is unchanged. So there are more returns to file and potentially more tax to pay, e.g. for a simple five year lease there will be three filing points:
Failure to file a return will result in penalties, even where no tax is due or a tenant is due a refund. The late-filing penalties for an LBTT return start at £100 where the return is up to three months’ late and increase to £1,600 where it is more than 12 months’ late – even where no tax is due. The penalties for late payment are tax geared.
It should be noted that where an LBTT relief has been claimed, broadly a return should only be required when the lease is granted (unless there is a clawback of that relief).
Revenue Scotland are undertaking an exercise to raise awareness and have updated their website to provide worked examples and further information in relation to the system for filing online returns.
Revenue Scotland are also planning to issue reminder notices in advance of the triennial filing deadline falling due. However, the obligation to file the return and the liability to pay additional tax will remain with the tenant. Failure by Revenue Scotland to issue a reminder, or, importantly, to issue a reminder to the correct address, will not be accepted as a reasonable excuse for late filing.
But it’s not all bad news. The inbuilt review process, and requirement to file a return on renunciation of a lease means that on renunciation the taxpayer is entitled to a refund of LBTT paid on the rent for all later years.
Commercial tenants in Scotland should be mindful - keeping track of one lease and meeting all the LBTT filing obligations can be tricky. Keeping track of multiple leases with multiple review dates may be a job in itself. KPMG in the UK have developed an app to make this manageable, which we would be delighted to demonstrate – please get in touch with your usual KPMG contact or one of the named contacts if you would like to know more.
For further information please contact: