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

A1 – Overview Of The 3 Yearly Review Process

1. Under LBTT, notifiable non-residential leases are subject to an ongoing tax journey after the first return is made.

2. This is achieved by requiring an updated return every three years from the effective date of the initial return. The review return should note what, if any, changes have been made to the original lease which could have an impact on overall tax liability. This can result in no tax being owed, or more tax or a repayment being due. This is a key distinguishing factor between LBTT and comparable UK taxes, where there is no review process.

3. The policy purpose of introducing three yearly reviews was to address the problem of the Net Present Value (NPV) approach to valuing leases on the basis that initial rents may be uncertain because of rent reviews, break clauses and uncertain, contingent and variable rents. Regular reviews are intended to bring more certainty into the valuation process by regularly assessing the economic reality of the lease, as well as projections of future rents.

4. The provisions in LBTT arose from the recommendations of a working group (established in late 2012, during Stage One of the LBTT(S) Bill) which was convened to consider how leases should be treated under the LBTT regime.^[1] This group explored several options but ultimately concluded that three-yearly review arrangements would represent the best overall approach. The Scottish Government subsequently brought forward amendments to the LBTT(S)Bill at Stage Two to provide for this.

5. The working group also agreed that tacit relocations (automatic continuations), lease variations and/or lease extensions should be picked up as part of the review process rather than requiring their own return.

6. In addition, the LBTT Act includes a requirement to submit a return even where the terms of the lease have not changed. This was intended to assist RS in terms of ensuring compliance with the LBTT legislation, particularly given the self-assessed nature of the tax.