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

A6 – Lease Penalties – Overview And Available Data

1. Under the current LBTT framework, penalties for late or missing returns operate on a statutory basis set out in the Revenue Scotland and Tax Powers Act 2014. Revenue Scotland is required to assess a penalty when a taxpayer fails to submit a return or pay tax on time, issue a notice stating the period or transaction concerned, and specify the amount due. Once a penalty is issued, the taxpayer must pay it within 30 days.

2. Time limits apply to the making of penalty assessments. In general, Revenue Scotland must issue an assessment within two years from the filing date or from the last date on which payment could have been made without incurring a penalty. For failures to file or failures to pay, separate 12‑month limits run from the end of the appeal period relating to the underlying tax assessment or from the point at which the relevant tax liability is established.

3. The penalty structure for failing to make an LBTT return is staged. An initial fixed penalty of £100 applies as soon as the filing deadline is missed. If the failure continues for more than three months, daily penalties of £10 may apply for up to 90 days. Further penalties arise at six and twelve months. At each point, the amount is the greater of £300 or 5% of the tax that would have been shown on the return.

4. Where a taxpayer deliberately withholds information that would assist Revenue Scotland in establishing their liability, the 12‑month penalty increases to the greater of £300 or 100% of the tax due.

5. The legislation allows penalties to be reduced in cases involving “special circumstances”. These are intended to capture situations that are uncommon or exceptional, or where the strict application of the law would produce a result contrary to the overall compliance intention of the penalty regime.

6. Special circumstances do not include an inability to pay or potential set‑off between taxpayers. Where special circumstances exist, Revenue Scotland may reduce a penalty by remission, suspension, or compromise.

7. Separately, a penalty does not arise if the taxpayer can demonstrate a “reasonable excuse” for the failure. An insufficiency of funds is not considered a reasonable excuse unless caused by events outside the taxpayer’s control. Likewise, reliance on another person - such as a solicitor or agent - does not amount to a reasonable excuse unless the taxpayer took reasonable care to avoid the failure. Where a reasonable excuse ceases to apply, the taxpayer must remedy the failure without unreasonable delay.

8. Feedback from stakeholders has repeatedly highlighted perceptions of disproportionality and unfairness in how penalties apply, especially where delays in submitting a return result in the automatic application of the statutory penalty framework.

9. These concerns are most pronounced in cases where no tax would have been due had the return been submitted on time, but a penalty is still triggered solely due to the late filing.

Operational Aspects

10. Despite Revenue Scotland establishing a dedicated team in 2021 deploying various methods to rectify this, to date around 38% of 3 yearly review returns are not filed (as of 30 June 2025). Of those not received, 41% were non-chargeable based on their original NPV.

11. Across all periods combined, Revenue Scotland reports that lease review penalties account for 67.1% of total late filing penalties (17,506 out of 26,082). In the period from April 2024 to July 2025 ~82% of the total number of late filing penalties issued by RS concerned lease reviews.

12. This represents an increase from the 2022/23 financial year where the percentage share for lease reviews was around 7% (2023/24 financial year ~59.5%). It is important to note, however, that earlier years figures will have been impacted by arrangements implemented as a result of COVID.