From April 2018, Land Transaction Tax (LTT) will replace UK Stamp Duty Land Tax (SDLT) in Wales. This is the first new Welsh tax for almost 800 years and paves the way for Wales to manage and control devolved taxes. We have had a look at the structure of the new tax and the implications that this may have on the housing market in Wales.
Like the Stamp Duty tax that it will be replacing, the Land Transaction Tax will be payable by the purchaser of a leasehold or freehold on Welsh land and property. The new tax will therefore affect house buyers and sellers as well as businesses involved in the property trade such as builders, property developers and professionals such as solicitors and conveyancers. Scotland already has the Land and Buildings Transaction Tax (LBTT) and the Welsh government claim that, whilst elements of their new LTT mirror the Scottish tax, lessons have been learnt from the Scottish experience.
The LTT in Wales:
A new public body, The Welsh Revenue Authority will collect and manage the devolved taxes from April 2018. The Welsh government ascertains that the new legislation is broadly consistent with the Stamp Duty tax it is replacing. As such it will maintain the same underlying structure and will mirror key elements such as partnerships, trusts and reliefs. The Welsh government hopes that this will provide stability and reassurance to businesses and the property market.
How LTT will be calculated:
The rate of tax payable is calculated using a 'slicing approach' meaning that each rate level only applies to the part of a property’s price that falls within that particular band. This is the same way of calculating tax as the new SDLT for residential properties introduced from 4 December 2014. However, LTT uses this method whether the property is residential or non-residential. The following tables show the rates and bandings:
Residential property transactions:
Price threshold Main residential rates
£0- £150,000 0 %
£150,000- £250,000 2.5 %
£250,000- £400,000 5 %
£400,000- £750,000 7.5 %
£750,000- £1.5 million 10 %
£1.5million-plus 12 %
An additional 3% charge will apply for the purchase of additional residential properties and purchases of residential property where the purchaser is not a company. Ie for second or holiday homes
Non-residential property transactions:
Price threshold Rates
£0- £150,000 0 %
£150,000- £250,000 1 %
£250,000- £1 million 5 %
£1 million-plus 6 %
Key features of LTT:
- For additional residential properties, an additional 3 percent will be payable on top of the main residential rate in each band.
- As with SDLT relief will be available from the additional rate where a main residence is being replaced.
- Anti-avoidance rules will apply in similar form to those for SDLT.
- Based on a banding or marginal rate system (as currently in place for SDLT) for both residential and non-residential properties.
- There will be no higher 15% rate, on the purchase of residential property over £500,000 by a “non-natural person” such as a company, as this is not seen as relevant for LTT.
- Reliefs will be the same as for SDLT: multiple dwellings relief, charities, group company transactions etc.
- The special partnership rules applicable to SDLT have been incorporated into LTT.
- Transactions involving properties which straddle the border between England and Wales will need to submit both an SDLT and an LTT Return, with consideration apportioned on a ‘just and reasonable basis’
- A General Anti-Avoidance Rule and a Targeted Anti-Avoidance Rule will be introduced.
Learnings from the LBTT in Scotland:
In Scotland The Land and Buildings Transaction Tax replaced Stamp Duty in April 2015. The LBTT is based on the scaled model of charges and these are levied on all residential sales over £145,000. The scheme has not been without its critics and has not yielded the results for the treasury that the Scottish Parliament predicted. The LBTT has been blamed for a sharp fall in property sales in the mid-market and the Scottish government now predicts that the tax is likely to raise £800 million less than originally expected during this parliamentary period.
On the flip side, the Welsh Revenue Authority expects to collect more than £1 billion in tax revenues over the next three years. Only time will tell whether that prediction will bear fruit for the devolved government. Whilst we will steer away from making any market predictions, we are certainly expecting to see a surge of Welsh properties on the market over the coming months, with vendors hoping to complete transactions before the 1 April introduction date.
Further information can be found on the Welsh Government website and in the Welsh tax policy report.
About the author
Danielle comes from a marketing and media background, with over 20 years experience in her field which includes tenures at a number of distinguished Cheshire-based magazines and marketing agencies. Danielle has responsibility for marketing at Rickit…
View Full Profile