Land and Buildings Transaction Tax review: Scottish government policy evaluation 2025-2026

Scottish Government Response to Section A

The Scottish Government welcomes the Working Group’s constructive engagement on the non‑residential lease elements of LBTT, and the supporting evidence drawn from Revenue Scotland data and operational experience.

Taken together, this evidence provides a strong foundation for future consideration of the non-residential lease regime within LBTT. This, and the key findings set out in this report, will be used to inform consideration of the relevant issues by Scottish Ministers in the next session of the Scottish Parliament.

The Scottish Government has drawn the following key findings from the work to date.

3 yearly lease review process – general

Working group discussions and Revenue Scotland data has highlighted concerns that current arrangements can result in a disproportionate administrative burden and complexity for small tenants and low-value leases, and challenges for Revenue Scotland in terms of administering the system. Questions have also been raised around whether the policy intent behind the three-year lease review process remains appropriate.

Stakeholders have proposed a range of options which could address these concerns, including changes to thresholds and the introduction of differentiated systems, event‑based triggers or simplified declarations. These would require further and more detailed consideration.

Frequency of Reviews

Working group discussions have highlighted stakeholder concern as to whether the current three-year review frequency strikes the right balance between accuracy, administrative burden and taxpayer understanding.

There was a broad, though not unanimous, view amongst working group members that extending the lease review cycle period to five years would reduce burden and better reflect commercial lease practice, though a recognition that this could create issues around compliance. There was also some limited support for shortening the period, though a recognition that whilst this might boost taxpayer familiarity with the process it would also increase the burden and complexity of the system.

The legislative and practical challenges associated with alternative approaches, for example to link reviews to lease events rather than to use a fixed cycle, appear to rule these out.

Approach to Nil Returns

Working group members have provided strong feedback that mandatory nil returns create unnecessary burden, particularly where no tax is due. Revenue Scotland data indicates that this is the case in around three-quarters of lease review returns,.

Stakeholders have highlighted potential improvements to assist taxpayers using the system and there continues to be low awareness among tenants about the review regime despite continued efforts from Revenue Scotland and others.

The review work to date has highlighted options which could be explored further, such as removing the requirement to submit a return where no tax is due, introducing simplified declarations, introducing a threshold below which a return would not be due and further enhancing communication with tenants.

Lease Penalties

Working group discussions have highlighted clear concerns about proportionality in terms of the application of penalties, especially where no tax is due, and whether daily penalties are having the appropriate behavioural impact.

Working group members have highlighted alternative approaches which could be considered, including tax‑geared models, graduated systems and a bespoke penalty regime. Points around communications, reasonable excuse and possible non‑monetary sanctions were also raised.