Three-year review – more tax payable

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

A renewable energy company enters a 10 year lease of a wind farm let on a turnover-based rent estimated at £100,000 per annum. The effective date of the transaction was 01 May 2015. The Net Present Value (‘NPV’) is calculated using the £100,000 payable in each of the 10 years.

The NPV was calculated to be £831,660.53. The agent for the tenant submitted a LBTT return and a tax liability of £6,816 was paid based on the NPV.

The date of the first three-year review will be 1 May 2018, that being the third anniversary of the effective date of the lease. A review return must be submitted no later than 31 May 2018.

The tenant 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 £120,000 per annum. The estimated rent for the remaining term of the lease is £120,000 per annum. The recalculated NPV using this amount is £997,992.64. Applying the tax rates in force at the effective date of 1 May 2015 gives rise to a tax liability of £8,479.

As £6,816 was paid in relation to the original LBTT return, a further £1,663 of tax must be paid at the same time as the review return is made.

The next three-year review is due on 1 May 2021. The tax rates in force at 1 May 2015 will apply throughout the term of the lease.

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