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Tax devolution spreads to Wales

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6th Feb 2018
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From 1 April 2018, two new land-related taxes will apply in Wales: land transaction tax for all property transactions and landfill disposals tax.

These will be the first new taxes in Wales for 800 years. They have been introduced as part of the devolution process granting additional powers to the Welsh Assembly. This article will focus on land transaction tax (LTT).     

Rates of LTT

LTT will replace Stamp Duty Land Tax (SDLT) for all purchases of property in Wales that complete on or after 1 April 2018. This includes tenants who acquire a leasehold interest in property, who will pay LTT rather than SDLT. The rates of LTT are shown in the tables below.

Residential properties

LTT has been designed by the Welsh government to be more progressive compared to SDLT, so that lower value transactions (other than first-time buyers paying more than £180,000 for their first home) will be subject to lower payments of LTT compared to SDLT. Like SDLT, LTT is calculated on each the slice of the property consideration which lies within the relevant band.

LTT 1

The purchase of additional residential properties or the purchase of any residential properties by non-natural persons (companies and trusts) will be subject to an LTT surcharge of 3%. The purchase of a property below £40,000 would not be subject to the surcharge.Compared to SDLT, and excluding the new first-time buyer relief from SDLT, less LTT will be payable on transactions in Wales below £250,000, with the same amount of LTT and SDLT payable on purchases with a value of between £250,000 and £400,000. Purchasers buying residential property with a value above £400,000 will pay more LTT compared to SDLT.

However, the purchase of an additional residential property for say £120,000 would be subject to 3% surcharge on the full amount giving rise to an LTT liability of £3,600. There are some exceptions to the 3% surcharge for the purchase of residential properties by trustees on behalf of beneficiaries holding a life interest under the terms of the trust. This is a complex area.

No LTT will be payable on the rental element of residential property leases. Any premiums paid for a leasehold property, for example, the purchase of a freehold flat, will be subject to LTT based on the freehold property rates of LTT.

Commercial properties

Ltt2

Compared to SDLT, less LTT will be payable on transactions involving commercial property below a purchase price of £1.1m due to the lower rate of LTT between £150,000 and £250,000. The introduction of the 6% rate of LTT above £1m will result in an increased cost for the purchase of high-value commercial property transactions in Wales from 1 April 2018. For example, the purchase of a £3m property will result in an extra £19,000 in tax under LTT compared to SDLT.LTT will be charged on the purchase price for freehold purchases (and other interests in land) and on any premium charged on the grant of a lease.

Leasehold transactions

The rental element of leases of commercial property will be subject to rates of LTT charged on the net present value (NPV) of the rents as set out in table 3. NPV will be calculated for LTT in the same way as for SDLT and based on the annual rent paid.

Ltt3

Transitional rules

The 2% charge to LTT commences at £2m compared to a value of £5m for SDLT. The Welsh government anticipates that less than 100 leasehold commercial property transactions will be subject to the 2% charge to LTT in 2018/19.

All transactions that complete on or after 1 April 2018 will be subject to LTT except for transactions where the contract was exchanged on or before 17 December 2014 (and not subsequently varied or assigned). Any contract that exchanged after 17 December 2014, but which completes on or after 1 April 2018 will be subject to LTT.

Tax saving

As there are no anti-forestalling rules, taxpayers contemplating purchasing residential property costing more than £400,000, or commercial property costing more than £1.1m in Wales, may wish to complete before 1 April 2018 to achieve a tax saving by paying SDLT rather than LTT.

LTT returns and payment

LTT will be administered and collected by the Welsh Revenue Authority (WRA), a new non-governmental department of Welsh government. 

All LTT returns and any payment of LTT (as well as landfill disposals tax) will have to be made to the WRA. An agent wishing to file a return and pay LTT must be registered with the WRA. The WRA are encouraging all filings and payments to be made online, although paper filings will be allowed where the use of technology is not available or not permitted by the taxpayer.

More Welsh taxes

LTT and landfill disposals tax is not the end of the devolution of Welsh taxes.

April 2019 will see the availability of income tax-varying powers for the Welsh government. Any Welsh income tax will be collected by HMRC rather than by the WRA. It remains to be seen whether Welsh government will take up the income varying powers and follow the lead of the Scottish government in varying the rates of income tax.

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Head of woman
By Rebecca Cave
12th Feb 2018 10:08

The regulations to impose LTT rates are published as SI 2018/128: http://www.legislation.gov.uk/2018/128

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