Where parties enter into an agreement for lease under which a lease is to be executed and the agreement is substantially performed without a lease having been executed, the agreement is treated as if it were the grant of a lease (referred to as a ‘notional lease’) that started on the date it was substantially performed in accordance with the agreement between the parties. The effective date of the transaction is the date when the agreement was substantially performed.
If at a later time a lease is formally executed (referred to as the ‘actual lease’), then LBTT is charged as if the notional lease was granted on the date it was substantially performed, for a term that begins on the date of substantial performance and ends in accordance with the dates set out in the actual lease and in consideration for the total rent payable over that term and any other consideration given for the agreement of the actual lease. The actual lease must either be in conformity with, or relate to substantially the same premises and term as, the agreement.
The grant of the notional lease and the grant of the actual lease are treated as linked, regardless of whether the provisions about linked transactions in the Act would have linked them in any case. The tenant under the actual lease is liable for any tax or additional tax due in relation to the notional lease. The original return for the notional lease may need to be amended to reflect the adjusted basis of the notional lease following the execution of the actual lease.
Where an agreement for lease is substantially performed without a lease being executed and it is later annulled or not carried into effect, the tenant may amend the LBTT return to claim for a repayment of tax from us.
Guidance on How to amend an LBTT return is available separately on our website.