As you will be aware, the Scottish Budget for 2020/2021 was published on 6 February 2020. This made changes to a number of financial regimes, including that of the Land and Buildings Transaction Tax (‘LBTT’) regime.
The principal change is the formation of a new tax band of 2% payable on non-residential leases which have a net present value of over £2million. This changes the structure of the non-residential leasing bands from two bands to three. The other existing non‑residential LBTT rates and bands remain unchanged.
This change came into effect on 7 February 2020. Transitional provisions detail that the new tax band will not apply if missives for the relevant transaction were entered into prior to 7 February 2020. Additionally, it will not apply to any return made for three-yearly reviews, assignations, or terminations of leases where the effective date is prior to 7 February 2020.
It is worth noting that the transitional provisions apply to transactions where missives are concluded prior to 7 February 2020, even when the effective date of that transaction is on or later than 7 February 2020. As such, in a transaction involving a non-residential lease where missives were concluded on 5 February 2020 but the entry date and, therefore, the effective date of the lease (providing that no substantial performance of the lease has occurred prior to 7 February 2020) is to be 10 February, then the new band will not apply and LBTT will be charged using the pre-budget rates and bands.
For those calculating LBTT on any current or potential lease transactions, the LBTT calculator on the Revenue Scotland website has now been updated to take account of the change.
Please be aware that legislation still needs to be passed by the Scottish Parliament to enable these changes to be made. That being said, this provision is to be treated as if it is currently in force. It is thought that should the changes not be approved by Parliament, any tax paid under the new band will be able to be reclaimed, and Revenue Scotland will issue guidance on how that is to be achieved.
It will clearly be leases at the higher end of the rental market, or longer leases, which are impacted by the new tax band. A ten-year lease would require to have a rent of at least £241,000 per annum in order to come within the new band. Nonetheless, it is expected that the change will generate £11million each year of additional revenue for the Scottish Government.
More information, including a worked example, can be found under Revenue Scotland guidance LBTT6040 – Scottish Budget Transitional Arrangements.
For help and advice on any of the matters raised please speak to a member of the Blackadders Commercial Property Team.
Stephen Annis, Trainee Solicitor
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