Land & Building Transaction Tax- commercial property

The Scottish Land & Building Transaction Tax (LBTT) is the Scottish replacement for Stamp Duty Land Tax (SDLT) and comes in to force on 1st April 2015.  Before the tax has even come in to force recent budget announcements have already resulted in new rates and bandings following alteration to SDLT rate in a recent budget statement.

To summarise the position; for all Scottish property transactions from 1^st April 2015, LBTT will now be applicable.  Whilst it will not be operational until 1^st April 2015, it is relevant to transactions which are being negotiated now.  The relevant trigger for payments is ordinarily completion and for many deals being negotiated now, there may be factors (i.e. timing of obtaining planning permission) which mean that the completion will be after 1^st April.

How much LBTT will you have to pay? 

Residential rates of LBTT were revised on 21^st January 2015, however, commercial rates were not altered from those announced in October 2014.  As a reminder the rates for commercial purchases are as follows:

Under existing SDLT regime:

• Up to £150k NIL
• 1% for prices between £150,001 – £250k
• 3% for prices between £250,001 – £500k
• 4% for prices over £500k

Under new LBTT regime:

• Up to £150k NIL
• 3% for the price between £150,001 – £350k
• 4% for any excess over £350k

Commercial Leases:

This is an area where there are to be substantial differences between SDLT and LBTT.

SDLT:

• Calculation based on 1% of the net present value (NPV) of the total rental payments (including VAT) to be made over the duration of the lease, less £150,000
• NPV is calculated on the basis that the rent for any years after the end of year 5 is the highest annual rent payable over the first 5 years even if the lease already fixes rent for any year from 6 onwards at a higher rate
• SDLT paid once and only paid thereafter following rent review

LBTT:

•  Commercial leases pay LBTT at the same rate as for SDLT on rent, however, the big difference is that tenants will be required to submit LBTT returns every three years if there is an assignation of the lease and at the lease end,
• LBTT will be adjusted if applicable,
• There will be no cut-off and assessment at the end of year 5 as there is with SDLT,
• Any rent deposit by a tenant on a new lease or by an assignee taking an assignation of an assignee taking an assignation of an existing lease will be treated as part of the consideration for LBTT purposes if it exceeds twice the rent.

LBTT is going to have wide reaching implications on commercial property transactions and is already impacting on negotiations that are taking place now.

If you would like to discuss purchasing or leasing a commercial property and are not sure how to proceed then I am happy to help you find a way forward.

Disclaimer 

The content of this webpage is for information only and is not intended to be construed as legal advice and should not be treated as a substitute for specific advice.  Macleod & MacCallum accepts no responsibility for the content of any third party website to which this webpage refers.