A non residential lease of Scottish property can be charged to LBTT on the net present value of the rent over the whole term, plus any premium. Unlike SDLT, the tenant must then file a further return on every third anniversary of the lease, and on assignation and termination, so the tax is trued up to the rent actually paid. A review return is required even when nothing has changed.

Which leases are within LBTT?

A non residential lease granted, or treated as granted, on or after 1 April 2015 is potentially chargeable. The rules are in Part 6 of, and Schedule 19 to, the Land and Buildings Transaction Tax (Scotland) Act 2013, with Revenue Scotland’s technical guidance at LBTT6001 onwards. Typical cases are shop, office and industrial leases, leases of part of a building, and variations or extensions of an existing lease.

Residential leases are generally exempt. That exemption does not cover a single lease of six or more dwellings, which is treated as non residential, or certain long leases that qualify under the Long Leases (Scotland) Act 2012.

Licences to occupy are outside LBTT altogether. Under Scots law, though, an agreement that has the four essentials of a lease (parties, an exclusive right to occupy specified premises, a start and end date or duration, and rent) is a lease whatever it is called, so labelling a document a licence does not take it out of the tax.

When must a lease return be filed?

Notification depends on the term, the premium and the relevant rent. Under LBTT6006:

  • a lease of seven years or more is notifiable if the relevant rent is £1,000 a year or more, or the premium is £40,000 or more;
  • a lease of under seven years is notifiable only if LBTT is payable;
  • an assignation or renunciation of a lease originally granted for seven years or more is notifiable if the consideration is £40,000 or more, even where no tax is due.

The return is due within 30 days of the day after the effective date, and any tax is paid with it under section 40 of the 2013 Act. If a lease that was not notifiable is later varied to extend the term or increase the rent and becomes notifiable, a return is due within 30 days of the variation. Where the lease is to be registered, the return must be made and the tax paid before registration.

How is the tax calculated?

Tax on the rent is worked out on the net present value (NPV) of the rent payable over the term. The temporal discount rate is fixed at 3.5% by Schedule 19, paragraph 7. VAT charged on the rent is included, so an option to tax increases the NPV. Where future rent is unknown, for example because of rent reviews or a turnover rent, it is estimated and corrected later at the reviews.

NPV of rent Rate (effective dates from 7 February 2020)
Up to £150,000 0%
£150,001 to £2,000,000 1%
Above £2,000,000 2%

A premium is taxed separately at the non residential purchase rates: 0% up to £150,000, 1% to £250,000 and 5% above. If the relevant rent is £1,000 a year or more, the premium loses the nil rate band entirely. The income tax treatment of premiums is a different question, covered in lease premiums and tax.

Revenue Scotland’s own example: a five year factory lease at £50,000 a year starting on 1 December 2015 has an NPV of £225,752.62, giving LBTT of £757 (1% on the excess over £150,000).

What are the three yearly review returns?

LBTT does not require a new return every time the lease changes. Instead, under Schedule 19, paragraph 10, the tenant files a review return on every third anniversary of the effective date of the lease. The return reports any changes since the effective date or the last review, such as rent reviews, a longer or shorter term or a change in the area let, and recalculates the NPV using the rent actually paid plus the projected rent for the remaining term.

  • The return and any extra tax are due within 30 days beginning with the day after the review date. For a lease with an effective date of 1 December 2015, the first review was 1 December 2018 and the return was due by 31 December 2018.
  • The rates and bands in force at the original effective date apply throughout. Later rate changes are ignored.
  • A return is needed even if nothing has changed and no tax is due.
  • If the lease is assigned or ends on a review date, only the assignation or termination return is needed.

Revenue Scotland’s wind farm example shows the effect of a turnover rent. The original return estimated £100,000 a year, giving an NPV of £831,660.53 and tax of £6,816. Actual rent turned out to be £120,000 a year, so the NPV at the first review became £997,992.64, tax rose to £8,479 and a further £1,663 was payable with the review return.

What happens when the lease is assigned or ends?

On an assignation, the outgoing tenant files an assignation return covering changes since the last return, and responsibility for future returns passes to the new tenant. The three year cycle does not restart; it continues from the original effective date. The incoming tenant may also need its own return, for example where it pays a premium of £40,000 or more.

When the lease ends, early or on expiry, the tenant files a termination return recalculating the tax on the rent actually paid, at the original rates. This can produce a repayment. In Revenue Scotland’s restaurant example, a ten year lease ended after seven years and the termination return produced a repayment of £551.

The obligations continue through insolvency. If the tenant company has a liquidator or administrator, that person becomes the proper officer responsible for the returns under section 44 of the 2013 Act.

What penalties apply if a review return is missed?

Review, assignation and termination returns are subject to the normal LBTT penalties: £100 for a late return, £10 a day for up to 90 days once it is more than three months late, and the greater of £300 or 5% of unpaid tax at six and twelve months. Late payment penalties of 5% apply at 30 days, five months and eleven months. Tenants without a solicitor can file review, assignation and termination returns through Revenue Scotland’s online portal; agents use SETS.

How does this compare with SDLT and Welsh LTT?

Feature LBTT SDLT LTT (Wales)
Nil band on rent NPV £150,000 £150,000 £225,000
1% band ends at £2,000,000 £5,000,000 £2,000,000
Rate above that 2% 2% 2%

The bands look similar, but the compliance burden does not. Revenue Scotland states that the three yearly review return is a change from the approach adopted for SDLT, so English practice is no guide to Scottish compliance. For the purchase side of each tax see LBTT (Scotland) explained and Land Transaction Tax in Wales.

What mistakes come up most often?

  • Diarising only the first return. Each lease needs a review date every three years for its whole life, and tenants change finance staff and advisers over that time.
  • Forgetting VAT in the rent after the landlord opts to tax; see VAT on commercial property.
  • Applying current rates at a review instead of the rates at the original effective date.
  • Assuming an assignee starts a fresh three year cycle. It inherits the original dates.
  • Not filing a termination return when a lease ends early, and so missing a repayment.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.