While there looks to have been a grace period during and after the Covid pandemic, Revenue Scotland appear to have recommenced issuing penalties on tenants who have omitted to submit a 3 year land tax review return. At present, there is no similar requirement in England and Wales within the SDLT regime, so it may be overlooked by some tenants, but that can be costly.
Background
Land and Buildings Transaction Tax (LBTT) replaced Stamp Duty Land Tax (SDLT) in Scotland on 1 April 2015. The LBTT regime brought in a few changes in respect of taxation of commercial leases. One significant change was the requirement to submit "review" returns every 3 years throughout the term of the lease. This change was designed to pick up rent changes (for example where the rent has a turnover element or there has been a rent review) to ensure that tenants are paying tax in line with the rent actually paid. Often there will be no changes, and therefore no more LBTT to pay – however the requirement to submit a return remains whether there are changes or not, and penalties will apply for any failure. A further return will also be due if the Lease is assigned or terminated (and if terminated early a refund of some of the LBTT paid can be claimed).
Your LBTT review obligations
A review Return will be required on (1) each 3rd anniversary of the "Relevant Date" (usually the same as the Effective Date) of the original LBTT Return for the lease; (2) the lease being assigned; or (3) the lease expiring or terminating.
Returns must be submitted within 30 days of the relevant event and the LBTT payable must be recalculated taking into account any changes in the rent or duration since the last Return was submitted. Where more tax is payable (e.g. if there has been a rent review or an extension of Lease) then it must be paid, and if less tax is due (e.g. if the initial turnover estimates were too high and so less rent was paid than anticipated, or if a lease is terminated early) then a refund can be claimed. Note that any rise in the relevant rates of LBTT should not, on its own, generate any further LBTT charges as the LBTT rates and bands used are those that applied when the lease was granted.
Potential Penalties
The penalties applied for late submission, even if no further LBTT is payable, are high when compared with SDLT. Even if no further LBTT is due, if a return is not submitted, or is late, the penalties can be substantial. There is an initial £100 penalty, with daily penalties applying after 3 months and further penalties after 6 and 12 months. As an example, a review Return that is over 12 months late, but with no further LBTT payable, would attract a penalty of £1,600.
When there is additional LBTT payable the 6 and 12 month late submission penalties can be higher as they are calculated on the outstanding tax and there will be an additional penalty for late payment of the tax (initially 5% of the outstanding tax, with a further 5% if not paid within 6 months and then a further 5% if not paid within 12 months). Taken together this can add up to a significant amount.
Conclusion
While Revenue Scotland have been sending reminders (either to tenants' registered offices or to the tenants' solicitors), those are not guaranteed so it is important that tenants have in place their own internal systems to remind them of their ongoing LBTT obligations. Tenants should also ensure that they keep copies of all LBTT returns submitted so they have an accurate record of the information required to submit further Returns.
Brodies are of course always on hand to assist with the process and submit the relevant returns on tenants' behalf if required.
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