Three-year review – less tax payable

Worked example for LBTT6014 – Three-year review of the tax chargeable.

SK Design Limited enters a turnover-based rent lease agreement for a period of 20 years. The effective date of the lease transaction was 31 August 2015 and the turnover-based rent was estimated to be £250,000 per annum. The Net Present Value (‘NPV’) is calculated using the estimate of £250,000 payable in each of the 20 years.

The NPV was calculated to be £3,553,100.83.  The agent for SK Design Limited submitted a LBTT return and a tax liability of £34,031 was paid based on the NPV.

The date of the first three-year review will be 31 August 2018, being the third anniversary of the effective date of the lease. A review return must be submitted no later than 30 September 2018.

SK Design Limited must recalculate the NPV using the actual rent payable for the first three years along with the projected rent for the remaining term. The effective date for the purposes of the review return will be the effective date of the original lease transaction. The relevant date will be the third anniversary of the effective date of the original return.

The actual amount of rent paid in each of the first three years was £170,000, £210,000 and £195,000 respectively. It is estimated that the rent payable in future years will be £200,000 per annum rather than the original figure of £250,000. The NPV must therefore be recalculated using the new estimate.

The recalculated NPV is £2,818,320.55. Applying the tax rates that were in force at the original effective date of the lease gives rise to a tax liability of £26,683.

As £34,031 was paid on the original transaction, a repayment claim of £7,348 can be made on the three-year review return.

The next three-year review will be due on 31 August 2021. The tax rates in force at the effective date of 31 August 2015 will continue to apply throughout the duration of the lease.


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