What is the temporal discount rate under LBTT Schedule 19?

The temporal discount rate is the percentage used to convert total rent payable over a lease into a net present value for LBTT purposes. It reflects the principle that future money is worth less than money received today, so future rental payments are discounted back to a present-day equivalent. The default rate is 3.5%.

Can the temporal discount rate of 3.5% be changed?

Yes. Scottish Ministers have the power to change the temporal discount rate by making a statutory order. They can specify a new fixed percentage, link the rate to an external benchmark or average of benchmarks, and include rules on adjustments, formulae, rounding, and the circumstances in which a rate change takes effect.

How is the net present value of rent calculated for LBTT?

Each year's rent over the lease term is discounted using the temporal discount rate to reflect its present-day worth. For example, at 3.5%, the second year's rent of £50,000 is worth £48,309 today. All discounted amounts are summed to produce the NPV, and LBTT rates and bands are applied to that NPV figure.

How can an order specify a new temporal discount rate?

An order can set a new fixed percentage, tie the rate to a published external reference rate, or base it on an average of several benchmarks. It may also allow the rate to be adjusted by fixed amounts or formulae, include rounding rules for averaged rates, and define the circumstances in which the change takes or does not take effect.

Land and Buildings Transaction Tax (Scotland) Act 2013 section Schedule 19 paragraph 7

Temporal discount rate

Schedule 19 paragraph 7 establishes the temporal discount rate used in calculating the net present value of rental income for LBTT purposes, and gives Scottish Ministers the power to change that rate by order.

The default temporal discount rate for net present value calculations under Schedule 19 is 3.5%.
Scottish Ministers may change this rate by order, either by specifying a new fixed rate or by linking it to an external reference rate or an average of reference rates.
Any order may allow the rate to be adjusted upwards or downwards by set amounts or formulae, and may include rounding rules for rates derived from averages.
An order may also set out the circumstances in which a change to the rate does or does not take effect.

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