How LBTT applies to leases

Leases general guidance

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Leases general guidance

Land and Buildings Transaction Tax (LBTT) was introduced on 1 April 2015 and may apply to anyone leasing non residential land or property in Scotland.

This guidance is for tenants who are dealing with leases that may be liable for LBTT. It helps you understand when a lease is notifiable, whether you need to submit a return, and how to do this.

Separate technical guidance on LBTT lease transactions is available for tax professionals: Lease transactions technical guidance.

Lease Transactions

What is a lease

A lease is an agreement that allows a tenant to use land or buildings for a set period of time, usually in return for rent.

For LBTT purposes, this guidance mainly applies to:

  • commercial leases
  • leases of part of a building
  • variations or extensions to an existing lease

Most residential leases are not liable for LBTT.

When a lease is notifiable

A lease is notifiable if it meets certain conditions.  If a lease is notifiable, you must submit an LBTT return even if no tax is due.

Rental element

A lease is usually notifiable if the Net Present Value (NPV) of the rent is more than £150,000.

Net Present Value (NPV) is the total value of the rent over the life of a lease, adjusted to today’s value. It is used to calculate LBTT on leases. 

Premiums

A lease may also be notifiable if a premium is paid. Premiums are treated separately from rent for LBTT purposes.

When a lease is not notifiable

A lease is usually not notifiable if:

  • the NPV of rent is £150,000 or less, and
  • there is no chargeable premium

In these cases, you do not need to submit a lease return.

Important: If a lease later changes and becomes notifiable (for example, because the rent increases), you must submit a return at that point.

LBTT rates for leases

LBTT on leases is charged using rates and bands that apply to:

  • the Net Present Value (NPV) of rent, and
  • any premium paid for the lease

Different rates apply to:

  • rental payments, and
  • premiums (which are charged in a similar way to property purchases)

Rates can change. You should always check the current rates before completing a return.

View the current LBTT lease rates and bands.

How LBTT works for leases

LBTT on a lease is usually calculated on the total rent payable over the term of the lease, using an NPV calculation.

Because leases can change over time:

  • LBTT may need to be recalculated
  • additional tax may become due
  • a lease review return may be required

You can use the LBTT calculator to work out the amount of LBTT you need to pay on a lease transaction. 

Even where no tax is payable, you may still need to submit a return if the lease is notifiable.

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