Today I'm looking at some quirky points on certain LBTT issues, which could trip up the unwary - and those are:
- sub sales that don't get any relief - timing for payment
- development sub sales that can get relief - how 5 years might be shorter than you think
- assignations of purchase contracts - how the "wrong" person pays and
- those regular lease returns - which are already being triggered on assignation and lease termination.
Sub sales - no relief, payment earlier than you might expect
For most sub sale transactions, there is no relief for LBTT for the first purchaser. So, if there is a contract to sell by seller to first purchaser and then first purchaser sells on to second purchaser, with both deals settling on the same day, two lots of LBTT will be due.
First purchaser pays LBTT on the price it pays to the seller and second purchaser pays LBTT on the price it pays to first purchaser. (Under SDLT, first purchaser can claim sub sale relief - so that only second purchaser has to pay SDLT.)
But the news could be worse for first purchaser. The trigger for payment of LBTT on the contract between the seller and first purchaser is the date that first purchaser enters into the contract to sell on to second purchaser. This could be done some time before the date for settlement of the purchases and payment of the prices.
Put another way, the entering into of the sub sale contract starts the 30 day clock running for payment of LBTT by the first purchaser on the price it is paying to the seller - regardless of whether or not that contract, or the sub sale, have actually completed by payment of the prices and transfer of the title to the property.
Development sub sales - relief, but period to complete development could be less than 5 years
Relief is available for first purchaser if significant development will be carried out on the property within five years. If the intended development, or some other significant development, is not completed within five years, then all or part of the relieved LBTT might become payable by first purchaser.
The quirk here is that the clock on that five year period begins to run as soon as first purchaser concludes a contract to sell on to second purchaser. Unless settlement of both sales occurs at the same time as the onward sub sale contract is concluded, there will be less than five years to complete the development. The five year period will be reduced by the length of the period between conclusion of the sub sale contract and settlement of both deals.
Assignation of purchase contract - assignor pays
It is much less common for sale contracts to be assigned, than for a first purchaser to sub sell on. If, instead of sub selling, first purchaser assigns its rights under its contract with the seller to second purchaser, what happens is that first purchaser steps out of the picture - so that you then simply have a contract for sale between seller and second purchaser.
The quirk on this one is that the assignation to second purchaser triggers the running of the 30 day clock for payment of LBTT on the price due under the contract for the purchase of the property from the seller. This applies even if that contract might not actually complete for some time. Not only that, but the person who has to pay that LBTT is the first purchaser - who is no longer involved in the purchase contract.
So contract assignors beware - make sure you get the LBTT payment from the assignee.
Regular lease returns - remember them on assignation and at lease end
Finally, one of the key differences between LBTT and SDLT relative to leases is that under LBTT once the initial return has been submitted, the tenant is then obliged to submit further returns:
- every three years
- if the lease is assigned and
- at the end of the lease.
Although the earliest three yearly return could only be due within 30 days after 1 April 2018 (three years after the LBTT regime was brought in), the other returns could be due before that date.
The tenant of any lease granted since 1 April 2015, for which an LBTT return was submitted at the start of the lease or has been submitted since then, must submit a further return if it assigns the lease and when the lease ends. This applies even if no further LBTT is due - and failure to comply will result in penalties being charged by Revenue Scotland.
It takes time to get used to any new rules but failure to keep these quirks in mind or assuming that the position is the same as for SDLT, could result in unexpected costs being incurred.