Land and Buildings Transaction Tax: the Sting is in the Tail

Most people know that the 1st of April is April Fools’ Day. But how many people south of the border know that the 2nd of April is Tailie Day in Scotland, a day when traditionally as a prank, paper tails were attached to the backs of unsuspecting people? Perhaps in our modern electronic age, there is less paper about, as the day seems to have largely died out.

The Scottish Parliament seems keen though, to revive the tradition. Yesterday saw the introduction of a new land transaction tax, Land and Buildings Transaction Tax (LBTT) which replaces Stamp Duty Land Tax (SDLT). As we have reported elsewhere, there are some welcome features of the new tax, including a closer connection between property value and the amount of tax paid.  Purchasers of commercial properties will pay less tax under LBTT than under SDLT on purchases up to £1.95 million.

All this is good – but there is a sting in the tail affecting tenants of leases of commercial properties after 1 April. Under its predecessor tax, SDLT, only one tax return needed to be filed to the tax authority at the start of the lease. LBTT works differently – a 10 year lease, for example, would require the tenant to submit not one, not two, not three, not four… but an extraordinary five tax returns to Revenue Scotland.  You might think this is an elaborate joke but you’re one day too late for that.  Here’s how LBTT returns work:

  • On the start date of the lease the tenant must file the first tax return – and do so within 30 days of the start date of the lease
  • at the end of year 3 of the lease, another return must be submitted – even if there is no additional tax due
  • more returns must be filed at the end of years 6 and 9 – again, even if no extra tax is due
  • for good measure, a further tax return must be submitted at the end date of the lease
  • lastly, if you think five returns are not enough, should the lease continue beyond 10 years, more tax returns will be needed

You might think the Scottish Government is playing a prank by pinning paper tails on unsuspecting tenants. But there is very much a sting to the tail, for anyone who fails to submit a tax return within 30 days will face an automatic £100 penalty, rising to as £1,000 plus 10% of the LBTT due on each return not made within 12 months of the due date. Furthermore, Revenue Scotland, it seems, has no plans to send out advance reminders to tenants.

The big point here is that tenants of commercial premises will need to be very organised to avoid paying these penalties.  At CCW we think we can help by giving our clients details of when exactly the returns are due and we can, if requested, help them file these to Revenue Scotland.  And if, indeed, there is sufficient demand from tenant clients, we will look at setting up a web service to send out advance automatic reminders to clients of when each return is due and prepare the relevant return.  If you think such a service would be useful, please do drop me an email.

Michael Dewar is an expert Commercial Property Lawyer assisting landlords, tenants, business owners and developers in Fife, Edinburgh and across Scotland.