The Tribunal confirmed that where a pre-1 April 2015 Scottish lease originating under SDLT is extended by a minute of variation, a new lease is not deemed to be created for LBTT purposes. This means that no LBTT is payable on the extension of the lease and, consequently, no subsequent three yearly returns, assignation returns, or termination returns are required to be filed as the lease has not entered the LBTT regime.
Revenue Scotland has 30 days to seek leave to appeal the decision.
Any person or business with a pre-1 April 2015 lease which has been extended under similar circumstances, and which has made a LBTT return in respect of such an extension should take note of and be aware of this decision.
What does this decision mean for any submitted LBTT lease extension return?
You may wish to consider whether a claim for repayment of the LBTT you have already paid in relation to your lease extension is open to you or your business.
Revenue Scotland’s guidance remains unchanged at present, and its website still states that a LBTT return for the extension of a pre-1 April 2015 lease is required to be submitted. We are waiting to see whether Revenue Scotland changes its guidance or appeals the Tribunal decision.
We suggest that you also review any previous leases (now terminated) which may be affected by this decision.
What does this mean for your three yearly returns due in relation to your pre-1 April 2025 lease extension?
Revenue Scotland’s guidance remains unchanged at present.
This tribunal decision presents you, as the taxpayer, with the option of submitting a three yearly return that reclaims the tax paid on the lease extension (which Revenue Scotland is likely to challenge). There is a risk that Revenue Scotland might try to resist any claim for repayment based on a technical argument.
However, if the case decision was to be overturned on appeal, and you had not submitted a return/paid tax, you would be required to submit a late three yearly lease review LBTT return and possibly a late payment of LBTT which would generate penalties and interest. The penalties applicable can be found here.
Deciding which option to take is fact and business specific. Each business will have its own specific risk and governance protocols in relation to tax. Our Scottish Tax team are very happy to discuss this in more detail with to help you to help you reach a decision on which option is best for your business and assist you in reviewing your leases or your lease portfolio.
If you have any questions or would like to discuss in more detail, please contact our Tax specialisits or your usual DWF contact.
