What is Landing and Buildings Transaction Tax?
Land and Buildings Transaction Tax (LBTT) is the Scottish property tax that replaced SDLT from 1 April 2015. On that date it was one of two new Scottish taxes, and the first for 300 years. A property tax was proposed as the first to be devolved due to the ease with which you can confirm where land is situated and therefore which tax regime that it will be subject to.
Despite being in place for over 10 years, the differences to SDLT – particularly for leases - still catch taxpayers out. Whilst the rates and bands for leases are similar in each jurisdiction, there are two key difference which can make tax due – and any penalties incurred - higher in Scotland.
Differences between Stamp Duty Land Tax and Land Buildings Transaction Tax?
Firstly, under SDLT the net present value for determining the chargeable rental is calculated using the highest annual rent payable over the first five years of a lease, regardless of whether that lease has fixed the rent at a higher level for year six onwards. This effectively caps the NPV for SDLT purposes. Under LBTT the net present value is calculated on the rent for the whole term.
LBTT Returns
Secondly, and what is often the bigger issue for taxpayers, is the requirement under LBTT on tenants to submit returns every three years and on any assignation or termination of lease. There is no cut-off of assessment as with SDLT. LBTT is re-assessed at three-year intervals based on actual rents paid and a reasonable estimate of rent to be paid for the rest of a term. This captures any increased rent following rent reviews. On the subsequent LBTT returns, the LBTT will be adjusted according to the updated rent amount and the NPV recalculated to determine any further dues that are payable.
LBTT is, however, a self-assessed tax and Revenue Scotland are not obliged to provide reminders to taxpayers that a further return is required. It is important for taxpayers to keep these further review dates and triggers in mind to ensure that returns are made and made on time to avoid penalties. These penalties are higher than those under SDLT and the 2024 tax tribunal case Indigo Sun Retail Ltd and Revenue Scotland saw the tribunal confirm that Revenue Scotland were not obliged to issue reminders and that a lack of any reminder is not a reasonable excuse for not making a return or a successful ground of appeal against penalties.
LBTT Penalties
Under LBTT, there are late payment penalties as well as penalties for late submission of returns and these penalties can be significant.
For late submission of a return, a taxpayer can be charged:
- £100 late filing penalty if the return is not received within 30 days of the effective date;
- £10 per day for up to 90 days where the return is more than three months late;
- £300 or 5% of any unpaid tax (whichever is greater) if the return is more than 6 months late; and
- Another £300 or 5% of any unpaid tax (whichever is greater) if the return is more than 12 months late.
If a return is made but the tax is not paid on time, a taxpayer can be charged:
- Initial penalty of 5% of the unpaid tax;
- Second penalty of 5% of the unpaid tax after five months; and
- Third penalty of 5% of the unpaid tax after 11 months.
The Scottish Government is currently carrying out a review of LBTT and it is expected that any recommendations that come out of that review will be considered by the next Scottish Parliament following the Scottish Parliament elections in 2026. Until then, the requirement for three-yearly returns by tenants and on any assignation or termination continues, and we can assist with making those returns on your behalf.
