Land and Buildings Transaction Tax (LBTT) is a charge on land transactions in Scotland. It is accepted that LBTT will replace Stamp Duty Land Tax (SDLT) in Scotland for most land transactions with an effective date of on or after 1 April 2015.
LBTT will make significant changes to the way returns are completed for commercial lease transactions including Assignations (no LBTT is be payable on standard residential leases). New rules regarding notification will be introduced alongside new rates of tax linked more closely to the rent payment. These rules have been incorporated by Schedule 19 of the Land and Buildings Transaction Tax (Scotland) Act 2013. The chargeable consideration includes rent and other monies, such as a premium, which is payable over the term of the lease. The amount of tax chargeable is determined by calculating the net present value (NPV) and applying the relevant tax rates (Schedule 19, Part 2).
As with property sales, the previous SDLT slab tax rates are being replaced by a progressive system causing a significant change in the current SDLT threshold system. The rates of tax which will apply to leases from 1st April 2015 are as follows:
- On rent - 1% of the 'net present value' of the lease over £150,000 (this is the same as the current SDLT rates)
- On premiums
- 0% up to £150,000
- 3% between £150,001 and £350,000
- 5% over £350,000
A calculator has been provided by Revenue Scotland (click here) to calculate the net present value of the lease and the LBTT payable.
The main difference between LBTT and SDLT when it comes to leases, however, is that whilst SDLT is generally calculated and notified only once when the lease is first entered into, LBTT is to be revisited every third anniversary of the lease and a return submitted to the tax authority to ensure that the correct tax is paid.
It is vitally important that tenants discuss their requirements with us when a lease is completed as penalties may apply where a tenant fails to submit a tax return when they are required to do so and, if tax is due, interest may also accrue.
For more information or guidance on the new legislative changes relating to Land and Buildings Transaction Tax please contact our experienced team.
