Guidance on LBTT Returns for Later Linked Transactions and Penalties

LBTT linked transactions and returns for earlier deals

If a later Scottish land or property transaction is linked to an earlier one, it can change the LBTT position of the earlier transaction. Where that makes the earlier deal notifiable, increases the tax due, or creates tax where none was due before, the buyer must file a new LBTT return or a further return for the earlier transaction within a short deadline.

• Linked transactions must be looked at together, and a later deal can alter the tax treatment of an earlier one.
• If the earlier transaction becomes notifiable, or extra LBTT becomes due on it, the buyer must file a return or further return for that earlier transaction.
• The buyer should not correct the position by amending the original return.
• The filing deadline is 30 days starting the day after the effective date of the later linked transaction.
• The tax on the earlier transaction is worked out using the LBTT rates and bands in force on the earlier transaction’s effective date, not the later one.
• Payment is due when the return is submitted, and late action can lead to penalties and interest.

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LBTT linked transactions: when a later deal means you must file a return for an earlier one

This page explains what happens when you enter into a later land transaction that is linked to an earlier one for Land and Buildings Transaction Tax (LBTT) purposes. In some cases, the later transaction changes the tax position of the earlier transaction. If that happens, the buyer may need to file an LBTT return, or a further LBTT return, for the earlier transaction. This matters because the filing deadline is short, the tax may increase, and penalties and interest can apply if the position is not corrected in time.

What this rule is about

LBTT looks at linked transactions together. A later transaction can affect how an earlier transaction should have been treated for tax. That can happen because linking the transactions changes the total consideration used in the LBTT calculation.

The rule covered here deals with what the buyer must do when a later linked transaction changes the earlier transaction’s reporting or tax position. The key point is that the buyer does not correct this by amending the original return. Instead, the buyer may need to make a new return or a further return in consequence of the later linked transaction.

What the official source says

Revenue Scotland’s guidance says that where a later linked transaction means that:

• an earlier transaction becomes notifiable,
• more tax is payable on the earlier transaction, or
• tax becomes payable on the earlier transaction when none was payable before,

the buyer must file an LBTT return or a further LBTT return for the earlier transaction. The buyer should not use an amendment to the original return for this purpose.

The return is due within 30 days beginning with the day after the effective date of the later linked transaction. Revenue Scotland describes this as the filing date.

For the return’s “relevant date” field, the date to use is the effective date of the later linked transaction.

The return must include an assessment of the tax due. The tax is calculated using the rates and bands that applied at the effective date of the earlier transaction, not the later one. Payment is due when the return is submitted.

The guidance cites sections 34 and 40 of the Land and Buildings Transaction Tax (Scotland) Act 2013.

What this means in practice

If you buy land or property in stages, or under arrangements that make separate transactions linked, you cannot look at each transaction in isolation forever. A later purchase may retrospectively change the LBTT effect of an earlier one.

In practice, there are three main situations to watch for:

• The earlier transaction did not previously require an LBTT return, but once the later linked transaction happens it becomes notifiable.
• The earlier transaction was reported, but the amount of LBTT due on it increases because the transactions are linked.
• No LBTT was due on the earlier transaction at the time, but linking it with the later transaction means tax is now due on that earlier transaction.

When one of those situations arises, you need to revisit the earlier transaction. But the mechanism is important: this is not treated as a simple amendment of the old return. It is a return, or further return, required because of the later linked transaction.

The timing also matters. The deadline runs by reference to the later transaction’s effective date. That means the compliance trigger is the later linked transaction, even though the tax effect falls on the earlier one.

The calculation point is easy to miss. Although the later transaction causes the need for the return, the tax due on the earlier transaction is worked out using the rates and bands in force at the effective date of the earlier transaction. You do not recalculate the earlier transaction using later tax rates.

How to analyse it

A sensible way to approach this is to ask the following questions in order:

• Is there a later transaction?
• Is it linked with an earlier transaction for LBTT purposes?
• Does linking them change the status of the earlier transaction so that it becomes notifiable?
• Does linking them increase the LBTT due on the earlier transaction, or create LBTT where none was previously payable?
• If yes, has a new LBTT return or further LBTT return been prepared for the earlier transaction rather than an amendment to the original return?
• Has the filing deadline been calculated by reference to the effective date of the later linked transaction?
• Has the tax on the earlier transaction been calculated using the rates and bands that applied on the earlier transaction’s effective date?
• Is payment ready to be made when the return is submitted?

You should also keep a clear record of how the transactions are linked, the effective dates, the original tax treatment, and the revised calculation. Revenue Scotland’s guidance also notes that record-keeping obligations apply whether or not a return is required.

Example

This is an illustration of how the rule works.

A buyer enters into an earlier land transaction in Scotland. At that stage, based on the facts then known, the transaction does not give rise to LBTT being payable, or may not have required a return. Later, the same buyer enters into a second transaction that is linked to the first.

Once the second transaction takes place, the two transactions must be considered together under the linked transactions rules. As a result, the earlier transaction now becomes notifiable, or the amount of LBTT due on it increases.

The buyer must then file an LBTT return or further LBTT return for the earlier transaction within 30 days of the day after the effective date of the later transaction. In that return, the buyer uses the effective date of the later transaction as the relevant date field, but calculates the tax on the earlier transaction using the rates and bands that applied when the earlier transaction became effective.

Why this can be difficult in practice

The main difficulty is that the trigger for compliance and the date for the tax calculation are different. The later linked transaction starts the filing clock, but the tax on the earlier transaction is calculated by reference to the earlier transaction’s effective date. That can be counterintuitive.

Another practical difficulty is procedural. Revenue Scotland’s guidance says the buyer must file a return or further return, not an amendment to the original return. If a person assumes this is just an amendment exercise, they may use the wrong process or miss the deadline.

Linked transaction analysis can also be fact-sensitive. Before deciding whether a further return is needed, you must be satisfied that the transactions are in fact linked for LBTT purposes. This page does not set out the full legal test for linkage, so that issue may need to be checked separately.

There may also be system issues in submitting a further return. Revenue Scotland notes that if you cannot manually amend the tax figure when submitting a further return, you should send a secure message with the original and new Revenue Scotland reference numbers and the new tax payable figure so that the calculation can be updated.

Finally, if the filing or payment is late, more than one consequence may follow. There can be late-filing penalties, penalties for inaccuracies, penalties for late payment in the circumstances described by Revenue Scotland, and interest on unpaid tax from the filing date until payment.

Key takeaways

• A later linked transaction can change the reporting and tax position of an earlier transaction.
• If that happens, the buyer must file an LBTT return or further LBTT return for the earlier transaction, not merely amend the original return.
• The deadline runs from the later transaction’s effective date, but the tax on the earlier transaction is calculated using the rates and bands in force on the earlier transaction’s effective date.

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Useful article? You may find it helpful to read the original guidance here: Guidance on LBTT Returns for Later Linked Transactions and Penalties

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