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

A3 – Working Group Discussion – Three Yearly Review Process

Reflections on Policy Intent

1. Participants discussed the policy intent behind the three-year lease review process, with several questioning whether the rationale remains appropriate in the current Scottish context. It was noted that the original intent was to ensure accuracy in tax assessment, revenue protection, and transparency. However, many stakeholders expressed concerns about the administrative burden and limited awareness among taxpayers.

2. There was consensus among participants that the process may be disproportionate for small tenants and low-value leases. It was highlighted that the majority of commercial leases in Scotland are relatively short and fixed in nature, making frequent reviews unnecessary. The current system was described as burdensome, especially for small businesses, and not proportionate to the tax outcomes.

3. Participants emphasised the importance of aligning any changes with broader tax principles and ensuring fairness and clarity in application.

De Minimis Threshold

4. Several participants suggested that leases below a certain value or complexity should be exempt from the three-year review requirement. The rationale was that the administrative burden and cost of compliance for small tenants is disproportionate to the tax at stake.

5. It was noted that many smaller tenants are unaware of the requirement and lack the resources or legal support to comply. A de-minimis threshold could help focus compliance efforts on leases where meaningful tax adjustments are more likely.

6. One participant proposed that RS could retain the right to opt certain leases back into the review cycle if they are unusually complex or variable, even if they fall below the threshold.

Two-Tier System

7. The idea of a two-tier system was raised as a way to distinguish between leases that require regular review and those that do not.

8. One tier could include high-value or long-term leases that are more likely to experience significant changes in rent or terms. The second tier could include standard, fixed-rent leases with minimal variation, which might only require a simplified or occasional review.

9. This approach was seen as a way to reduce unnecessary filings while maintaining oversight where it matters most. Concerns were raised about the complexity this might introduce, but it was argued that the current system is already complex and not well understood.

Event-Triggered Reviews

10. There was a suggestion that the fixed three-year review cycle could be replaced with a system where reviews are triggered by specific lease events (e.g. rent reviews, lease extensions, assignations, terminations). This would be intended to align tax reporting more closely with actual changes in lease arrangements, potentially improving relevance and reducing unnecessary filings.

11. The challenge of defining triggers clearly and ensuring consistent application was however recognised, including as Scottish property law does not include concepts like “implied surrender and regrant” found in English law. Introducing tax rules that might influence how leases are structured could also interfere with commercial decisions, whilst tracking and verifying event-based triggers could be complex for both taxpayers and RS.

Simplified Declarations

12. Consideration was given to the case for introducing a simplified process for leases where no changes have occurred, such as a tick-box declaration confirming no variation in rent or lease terms. This would reduce the burden on taxpayers and agents, especially for small businesses and fixed-rent leases where full returns are seen as disproportionate.

13. Simplified declarations were also seen as a practical way to maintain compliance in relation to nil returns, without excessive paperwork. This could be paired with improvements to the SETS system to make it more user-friendly for occasional users.