Commercial Tenants – have you made your 3 yearly LBTT Return?

This is a reminder to Business clients.

If you’ve entered into a commercial lease (or if you’ve taken an assignation of or varied a commercial lease that came into force on or after 1st April 2015) then you must remember to make a 3 yearly Land & Buildings Transaction Return.

What many people didn’t fully appreciate when the Land & Building Transaction Tax came into effect was that those who entered into a commercial lease on or after 1 April 2015 which was subject to Land & Building Transaction Tax would then need to submit a Land & Buildings Transaction Tax every third year from the anniversary of the “effective date” – usually the date of entry under the lease.

Just to make clear for those of our commercial clients who may be concerned, a return is NOT required for any lease that was subject to either Stamp Duty or Stamp Duty Land Tax.

The purpose of this three yearly review is to ensure that the government receives the correct amount of tax based on the value of the lease. When you purchase a property you will pay Land & Buildings Transaction Tax based on the price. The problem with leasing is that the full value over the life of the lease can’t be properly worked out at the beginning.

To overcome that, unless there are specific conditions in the lease with fixed figured for rent increases, the Scottish Government decided that the best way of ensuring they maximised the tax take was to require a three yearly Return be made.

What this means in practical terms if that when the rent is reviewed (almost invariably in an upward direction), the increased rent will be reflected in the next Land & Buildings Transaction Tax Return and the tax then paid based on the increased value for the remainder of the lease.

When a lease is assigned or varied, a Land & Buildings Transaction Return is also required, again, to ensure that any increase in the rent is reported for tax purposes with the corresponding payment being made to the Scottish Government.

Should you fail to make the required LBTT Return or if you make your Return buy then don’t pay any tax due, you will receive a penalty for each of these failures, with interest, until the return and/or payment is made.

We would recommend you visit Revenue Scotland’s website that deals with leases. You’ll find that by clicking here.

Remember, it’s the commercial tenant’s responsibility to make the Land & Building Transaction Tax Return – nobody else is responsible for this.

We’re happy to help should you need our assistance –  just telephone us or send us a message by email.

If you’ve entered into a commercial lease you must remember to make a 3 yearly Land & Buildings Transaction Return.Hastings Legal Lab

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