Land and Buildings Transaction Tax (Scotland) Act 2013 section Schedule 19 paragraph 25

Agreement for lease substantially performed without execution of lease

Schedule 19 paragraph 25 deals with what happens for LBTT purposes when an agreement for a lease is substantially performed (for example, the tenant takes occupation or starts paying rent) before the lease itself has been formally signed and executed.

• When a tenant begins occupying premises or paying rent under an agreement for lease before the lease is formally executed, that agreement is treated as if it were itself the grant of a lease (a "notional lease"), and LBTT becomes due at that point.
• If a formal lease is later executed, the notional lease is recalculated to cover the full period from the date of substantial performance to the end of the actual lease term, with the tax based on the total rent and any other consideration over that combined period.
• The grant of the actual lease is generally ignored for LBTT purposes — it does not trigger a separate LBTT charge — except that the notional lease and the actual lease are treated as linked transactions, and the tenant under the actual lease is responsible for any additional tax that arises.
• If the agreement is later rescinded, annulled, or otherwise not carried into effect, the LBTT paid can be reclaimed from Revenue Scotland by amending the original return, subject to the time limits for amending returns set out in the Revenue Scotland and Tax Powers Act 2014.