Land Transaction Tax

By Sarah Delaney, Associate Director, Stamp Taxes

The introduction of the Wales Act 2014 made provision for the devolution of taxation powers to the Welsh Assembly and borrowing powers for the Welsh Government. 

A milestone moment in Welsh devolution will come into effect from 1 April 2018, when Wales will take control of its first taxes in 800 years.  Stamp duty land tax and Landfill tax will be devolved and replaced with Land Transaction Tax and Landfill Disposals tax. 

Partial devolution of income tax will follow, with a new income tax for taxpayers in Wales to be introduced from 6 April 2019. 

In case you’re not aware, there is currently no intention to devolve VAT, Corporation Tax or National Insurance to Wales.

Which taxes are being devolved in April?

The devolved taxes that come into effect from 1 April 2018 are Land Transaction Tax (LTT) and Landfill Disposals Tax (LDT).

LTT, the focus of this blog, replaces Stamp Duty Land Tax (SDLT) which will be “switched off” on property purchases in Wales from 1 April 2018 and replaced with LTT.

Why are they being devolved?

The devolution of taxes in Wales should give Welsh Government greater financial accountability. For example, revenues for 2018/19 are forecasted to be £244m for LTT.

What if I’m buying a property in Wales?

If you’re buying land or buildings situated in Wales after 1 April 2018, you should take special note of the following in case they apply in your case.

  • Timing
    Generally speaking, any Welsh property acquired, including any commercial lease entered into, on or after 1 April 2018 will be taxed under LTT rather than SDLT.  There are however some transitional rules relevant where contracts are exchanged or substantially performed before that date.

    The Welsh Revenue Authority has been granted powers and duties to collect the tax and manage the function of LTT from April 2018, in place of HMRC.  This authority is in the process of developing guidance, some of which is already available online via the Welsh Government’s website.
  • Deals involving properties across the country
    With the introduction of LTT in Wales and LBTT in Scotland, large property deals that involve transfers of properties located across the UK may be subject to three different taxes rather than just one.  Real estate located in Wales, England and Scotland will be subject to LTT, SDLT and LBTT respectively, in terms of both filing and tax payment requirements. 

    The total consideration for cross-border transactions will need to be apportioned on a “just and reasonable basis” to arrive at the consideration relating to the land in each tax jurisdiction.   
  • First time buyers
    There won’t be a first time buyer relief but the starting threshold for paying LTT, of £180,000, is higher than any of the other stamp taxes in the UK.

    The Welsh Government forecasts that 9 out of 10 home buyers in Wales will either pay the same or less tax than under the SDLT regime.  LTT however provides higher rates of duty for purchases of residential properties where the consideration is over £400k.
  • Second residential property
    A 3% additional charge of LTT is applicable on purchases of second residential properties when not a replacement of main residence. This surcharge is also applicable on a first residential purchase by a corporate. 

    The application of these rules for LTT are similar, but with some differences to those introduced under SDLT (which will continue to apply to England and Northern Ireland) and LBTT (Scotland). 
  • No higher, flat rate charge
    Under SDLT, a 15% flat rate charge applies to “non natural persons”, in the main corporates, purchasing a residential property with a market value of £500,000 or more, subject to some exemptions.  This higher, flat rate charge, will not apply under LTT.
  • Leases
    Under LTT, the non residential rates are higher and a grant of a commercial lease over Welsh property would potentially incur higher rates on both the rental element and any premium payable.

    In my view, this could be a substantial additional cost for some commercial investors in Wales (where the property size/cost is significant), compared to setting up a business in England.

    Unlike SDLT but similar to the Scottish system, there will be no LTT on the rental element of residential properties.
  • Reliefs
    There are a number of reliefs available that can, in some instances, bring the tax down to nil. The reliefs available under LTT are substantially the same as under SDLT with some disqualifying arrangements and clawbacks to watch out for.
  • Rates
    Details of the rates of LTT are available online.

One other thing you’ll need to be aware of are the different anti-avoidance rules as compared to those under SDLT and LBTT.

How do I file the return or pay the tax?

As LTT is a self assessed tax it is important that you, as a taxpayer, are aware of your obligations and how these new rules affect you.  The WRA, and not HMRC, is responsible for the format and content of the new LTT return, and also collection of LTT.

The deadline for filing LTT returns and payment of LTT will still be 30 days from the transaction date, there is currently no proposal to reduce this to 14 days, in line with SDLT.  You should note that the WRA has a period of 12 months in which to open an enquiry into an LTT return, compared to 9 months for SDLT. Plus the WRA has also introduced fixed cumulative tax geared penalties for late payment of LTT.

And finally…

The Welsh Government's website contains lots of useful information about Land Transaction Tax and a tax calculator is available on the WRA website.

But if you’re concerned about how the new rules might affect your purchase of property in Wales, you should get in touch with your usual Deloitte contact or a member of our Stamp Taxes team.
 

Sarah Delaney

Sarah Delaney, Associate Director, Stamp Taxes

Sarah is a stamp tax specialist with significant experience in substantial property transactions, including construction and development projects, and restructuring projects. She has participated in the review and consultation on draft legislation for LTT in Wales and also the review of draft LTT guidance for WRA. She is also an active member of the Stamp Tax Practitioners Group.

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