Tenant taxpayers should be aware of their ongoing responsibilities under the Land and Buildings Transaction Tax (“LBTT”) regime, as Revenue Scotland has recently issued an increasing number of penalty notices for the late submission of three-yearly LBTT returns due to a post-Covid backlog. The fact that further LBTT returns must be filed at various points during the life of an LBTT lease, not only at the time of lease entry, appears to still cause some uncertainty nearly ten years after the tax was first implemented.
What is the deadline for filing additional returns for land and buildings transaction tax? Scotland
The following situations necessitate filing supplementary LBTT returns (and paying more tax to Revenue Scotland, if applicable):
- Every three years for the duration of the lease, including any extensions (i.e., on the third anniversary of the date of effective and every three years thereafter) must be calculated by the landlord.
- if the lease is offended (forfeited), assigned, terminated, or repudiated. This includes situations in which a break option is exercised or a notice to quit is served by either party, ending a lease.
Penalties and interest will be applied if the returns are not filed within 30 days of the effective date and any additional taxes paid. It is entirely the taxpayer’s responsibility to agree to comply with the filing requirements.
Unlike personal tax returns, which have a set deadline for everyone to submit, the effective date of the lease differs from lease to lease, particularly in Scottish law. Since the effective dates would probably change for each leasehold property, this can provide taxpayers with a management headache. Determining the LBTT three-yearly dates for every lease is crucial, in addition to having a system in place for determining break and expiry dates as required by Scottish law.
Acquisitions by corporations – Latest updates
To ensure that all returns have been filed, that the right return references have been used, and that all LBTT and penalties/interest have been paid, the LBTT documentation should be examined as part of the due diligence process for anyone purchasing a company that is a tenant of property through a corporate share deal. This is significant because the purchasing company will take over the tenant’s or taxpayer’s responsibilities, including the timely filing of future three-year returns.
Penalties – property in Scotland
The number of clients asking us to file their three-year returns after receiving a penalty notice from Revenue Scotland has increased recently; some clients received the penalty notice almost two years after the deadline for submission. The penalty for being two years late with a three-year return is £1,600 per return, even if no tax is owed. Therefore, it’s crucial to meet the filing deadline and, if it is missed, to act quickly to file the late return.
Letters of reminder
Unfortunately, the taxpayer cannot count on Revenue Scotland to send a letter of reminder regarding their residential and non-residential properties. Although some taxpayers do get reminder letters, it doesn’t seem like this has happened to everyone. It’s important to remember that Revenue Scotland is under no duty to send reminder letters, and that failing to send or receive a reminder letter is not an excuse for the imposition of a payable fine.
Even in cases where Revenue Scotland sends reminder letters, they could be delivered to an old correspondence address listed on an earlier LBTT return instead of the company’s current registered office. Penalty notices, on the other hand, are sent to the taxpayer’s registered office, which is frequently where the taxpayer learns of a missing return related to their residential property. To guarantee that any correspondence is sent to the proper address, the taxpayer must notify Revenue Scotland if their address changes throughout the three-year term, especially for public sector dealings.
Revenue Scotland v. Indigo Sun Retail Ltd., July 2024
Several of these issues came to light in the recent Tribunal case involving a Scottish landlord. Indigo Sun Retail Ltd v. Revenue Scotland. The case revolved around Indigo Sun’s appeal against penalties imposed by Revenue Scotland for the late submission of tax returns.
Indigo Sun argued that if they had received the initial £100 penalty notice for failing to submit returns on time, they would have realized their oversight, contacted their solicitor, and avoided further penalties. They contended that the first notice of late submission should have been issued before daily penalties could begin to accrue on their residential property. However, the Tribunal determined that there was no obligation for Revenue Scotland to send an initial notice before the additional daily penalties accumulated.
Indigo Sun’s only remaining grounds to challenge the penalties were based on (i) reasonable excuse and (ii) exceptional circumstances as outlined in the contract. The Tribunal found that Indigo Sun did not have a reasonable excuse, stating: “LBTT is a self-assessed tax. [Revenue Scotland] is not required to notify a taxpayer of their responsibility to submit a tax return…The Appellant does not have a reasonable excuse for failing to submit the returns on time.”
Furthermore, the Tribunal concluded that Indigo Sun had not provided any credible evidence of exceptional circumstances that would make the penalties unjust or create an undue burden. As a result, their appeal was dismissed, and they were advised to seek an overview of their options with a legal professional.
The LBTT regime can seem overwhelming for taxpayers, but it is crucial to keep the following in mind:
- Make sure your solicitors at the law firm have enough time to prepare and submit returns by arranging the three-year deadlines.
- If your lease is assigned or terminated, the landlord must submit further returns.
- To prevent missing crucial communications, notify Revenue Scotland of any changes to your registered office or correspondence information.
If you need help calculating the due date of your next three-yearly return or require assistance in filing a return, please call us or reach out to our Commercial Property team.
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Own a property in Scotland and need to speak with a solicitor? Complete Clarity Solicitors are based in Glasgow, East Kilbride & Edinburgh however with our unique teleconferencing facilities, you do not even need to visit our office for legal advice. We deal with property transfers, Stamp duty land tax, property purchases, residential leases, landlord’s, Call us for free initial consultation with our housing law solicitors, call us today on 0141 433 2626 or alternatively complete our online form and let us help you.
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