A lease review is used to update the LBTT position where the tax calculation has changed since the last return was submitted.
Your ongoing responsibilities as a tenant
You may need to submit a lease review:
- every 3 years during the lease
- when an existing lease is assigned to another tenant (known as assignations)
- when the lease ends (known as termination)
A lease review confirms whether:
- more tax is due
- tax has been overpaid
- no further tax is payable
Three‑yearly review returns
You do not need to submit a new return every time something changes in the lease.
Instead, unless the lease has ended, you must submit a three‑yearly review return:
- on every third anniversary of the effective date of the lease
The review return:
- reports any changes since the effective date or last review
- allows Revenue Scotland to reassess the amount of LBTT due
Important: You must submit a three‑yearly review return:
- even if there have been no changes to the lease
- even if no additional tax is payable
A furniture company enters into a 5‑year lease of a factory at a rent of £50,000 per year. The effective date of the lease is 1 December 2015.
The Net Present Value (NPV) is calculated using the £50,000 payable in each of the 5 years.
(The NPV is the total value of the rent over the lease, adjusted to today’s value.)
The tenant’s agent submits an LBTT return and pays the tax based on the NPV.
First three‑year review
- Review date: 1 December 2018
- Return must be submitted by: 31 December 2018
For the review:
- the effective date remains 1 December 2015
- the relevant date is 1 December 2018
- rent paid so far is unchanged
- future rent is still £50,000 per year
The NPV remains the same and no further tax is due.
Even though nothing has changed, a review return must still be submitted.
Next review
The next three‑year review will be due on 1 December 2021.
The tax rates in force on 1 December 2015 will continue to apply for the whole term of the lease.
Assignation of a lease
An assignation is when a tenant transfers their interest in a lease to another party.
What happens when a lease is assigned
- The outgoing tenant (the assignor) must submit an assignation return
- The return must include:
- details of the assignation
- any changes since the last LBTT return
- details of the new tenant (the assignee)
After the assignation:
- responsibility for LBTT passes to the new tenant
Three‑year review dates
The three‑yearly review cycle:
- does not restart on assignation
- continues from the original effective date of the lease
In some cases, the new tenant may also need to submit their own LBTT return. This applies, for example, if:
- the original lease was not notifiable, or
- a payment is made on assignation
A factory is let to Tenant A for 10 years with an effective date of 15 September 2016.
The annual rent is £85,000.
Tenant A submits an LBTT return and pays the tax within 30 days.
Assignation
On 10 September 2018, Tenant A assigns the lease to Tenant B.
- The relevant date of the assignation is 10 September 2018
- Tenant A submits an assignation return by 10 October 2018
- Tax is calculated using the rates in force on 15 September 2016
- The effective date remains 15 September 2016
After the assignation
- Responsibility for LBTT passes to Tenant B
- The first three‑year review date is 15 September 2019
- The review return must be submitted by 15 October 2019
Premium paid
Tenant B pays a premium of £200,000 for the assignation.
Because the premium is over the £40,000 notifiable threshold:
- Tenant B must submit an LBTT return within 30 days
- LBTT of £1,500 is payable
Note: If the premium had been £50,000, it would still be notifiable (as it is over £40,000), but no LBTT would be payable.
Termination of a lease
If a lease ends, either:
- early, or
- at its natural expiry
the tenant must submit a termination return.
How tax is recalculated
The termination return:
- recalculates LBTT using the rates and bands in force at the original effective date
- reflects the actual rent payable up to the termination date
This may result in:
- additional tax due, or
- a repayment if too much tax has been paid
If more tax is due, payment must be made at the same time as the termination return is submitted.
A 10‑year lease of a restaurant starts on 1 November 2017, with rent of £25,000 per year.
The tenant:
- submits an LBTT return
- pays LBTT of £579
Three‑year review returns are submitted in 2020 and 2023.
Early termination
The lease ends early on 31 October 2024.
The tenant must:
- submit a termination return by 30 November 2024
- use 31 October 2024 as the relevant date
The LBTT is recalculated using the rates in force on 1 November 2017.
The updated NPV is lower than originally declared, resulting in an overpayment of £551.
When completing the termination return, the tenant or agent must:
- answer ‘Yes’ to claiming a repayment
- submit the return for the £551 repayment
The NPV will be calculated automatically when the return is completed.