Three-year review – Tacit relocation

Worked example for LBTT6014  - Three-year review of the tax chargeable.

The effective date of a five year lease of a warehouse let for a rent of £100,000 per annum was 1 January 2016. The net present value (NPV) is calculated using the £100,000 payable in each of the 5 years.

An LBTT return was submitted and tax of £3,015 paid, based on the calculated NPV.

The tenant submits their first three-yearly review return in 2019. Neither party serves a notice of termination and the lease continues after its fixed term under a period of tacit relocation. As the lease is continuing, the tenant does not need to submit a review return upon the natural expiry (termination) of the lease.

This lease is now treated as if it were a lease for one year longer than the original agreed termination date. A further year is added to the original termination date of the lease for each year that the lease continues.

A further LBTT return does not require to be submitted to Revenue Scotland for each year the lease continues. As the lease was previously notified to Revenue Scotland, the new details should be included in the next three-year return in respect of the original lease (or in a termination return, if the lease does not continue to tacit relocate until the next three yearly review date).

The date of this three-year review return will be 1 January 2022, that being the day of the next triennial anniversary of the effective date of the lease. This return must be submitted no later than 31 January 2022.

The tenant must recalculate the NPV on the basis that the lease is now for a term of six years, using the actual rent payable in each year.

The recalculated NPV gives rise to tax of £3,828.

As £3,015 was paid on the original transaction, a further £813 must be paid at the same time as the return is made.

When the lease finally ends, a further review return will be required within 30 days of the date on which the lease was terminated

Last updated: 
6 February 2018
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