The new tax regime will see the introduction of Land Transaction Tax (LTT), which will replace UK Stamp Duty Land Tax (SDLT) in Wales.
Like its predecessor, LTT will potentially be payable on the purchase or lease of a building or land, however, the thresholds for tax have changed.
LTT may affect house buyers and sellers and businesses including builders, property developers and agents involved in the transaction process (such as solicitors and conveyancers). However, higher rates of SDLT on further properties, including second homes, which took effect from April 2016, will remain in place. These could affect those considering buy-to-let property investment.
On its official website, http://gov.wales/funding/fiscal-reform/welsh-taxes/land-transaction-tax/?lang=en, the Welsh Government states:
“The legislation is broadly consistent with SDLT, preserving the underlying structure and mirroring key elements such as partnerships, trusts and reliefs, to provide stability and reassurance to businesses and the property market.
“Changes have been made to:
- simplify the tax and make it fairer
- improve its efficiency and effectiveness
- focus on Welsh needs and priorities.”
The bill for these changes received Royal Assent on 24 May 2017 and the tax bands and property value thresholds were announced in October 2017.
Thresholds for Land Transaction Tax (LTT) from April 2018:
Price threshold Main residential rates
£0 – £150,000 0%
£150,001 – £250,000 2.5%
£250,001 – £400,000 5%
£400,001 – £750,000 7.5%
£750,001 – £1.5 million 10%
Above £1.5 million 12%
Current stamp duty rates in England & Wales:
Price threshold Main residential rates
£0 – £125,000 0%
£125,001 – £250,000 2%
£250,001- £925,000 5%
£925,001- £1.5 million 10%
Above £1.5 million 12%
According to the Welsh Government, the new LTT system will see nine out of ten home buyers financially better off.
The following information, sourced directly from the Welsh Government website document http://gov.wales/docs/caecd/publications/170524-LTT-factsheet-en.pdf provides more information on the changes.
The Land Transaction Tax and Anti-avoidance of Devolved Taxes (Wales) Act (the “Act”) is the second of three pieces of legislation to establish devolved tax arrangements in Wales. The purpose of the Act is to establish a new tax on land transactions to replace Stamp Duty Land Tax (SDLT), as well as measures to tackle devolved tax avoidance.
This legislation is linked to the Tax Collection and Management (Wales) Act 2016 (TCMA) which provides the powers and duties to collect the tax, and will be followed by legislation to establish Landfill Disposals Tax (LDT).
SDLT will cease to apply in Wales from April 2018. By providing a replacement, public services in Wales will continue to receive the benefit of the revenues raised by a tax on land transactions.
Higher rates residential property transactions
Higher rates on certain residential property transactions have been charged in Wales through SDLT since April 2016 and revenues have increased as a result. To protect the increased revenues, and public services, the Act also charges higher rates in Wales.
Land Transaction Tax (LTT)
The Act sets out:
- the key principles of LTT, such as the types of transactions that will incur a charge to LTT, exemptions and the persons liable to pay LTT;
- the procedure for setting tax rates and bands;
- how the tax will be calculated and what reliefs may apply;
- specific measures to tackle devolved tax avoidance;
- the application of the Bill in relation to leases;
- the application of the Bill to specific persons and bodies (for example, companies);
- the process for making a LTT return and payment of the tax;
- the duties on taxpayers to make payments and to pay penalties and interest in certain circumstances;
- the application for applying the higher rates to certain residential property transactions.
Welsh Revenue Authority (WRA)
The WRA will undertake all the collection and management functions for LTT from April 2018. The WRA will be responsible for developing guidance to assist taxpayers, and their agents, in complying with their obligations. This will be available online before LTT goes live in April 2018. Kathryn Bishop will be the first Chair of the WRA, with further non-executive board members being appointed in the summer.
What changes have been made from SDLT?
Any changes have been made to either: simplify the tax; make it fairer; improve its efficiency and effectiveness; or to enable a focus on Welsh needs and priorities. A fuller list will form part of the guidance – key changes include:
|Area of change||Land Transaction Tax||Stamp Duty Land Tax|
|A ‘General Anti-avoidance Rule’ (GAAR)||The GAAR will enable WRA to recover any devolved tax that has been avoided as a result of an ‘artificial’ tax avoidance arrangement.||Applies to ‘abusive’ tax arrangements, and establishes a GAAR Advisory Panel.|
|Relief Targeted Anti-avoidance Rules (TAARs)||The Act includes a single, clear rule applicable to all reliefs that prohibits a relief from being claimed where the transaction forms part of tax avoidance arrangements.||SDLT includes a number of specific rules to tackle potential avoidance activity of particular reliefs.|
|Deferral of tax||The Act includes rules relating to the deferral of tax in cases of contingent or uncertain consideration.||For SDLT similar rules were set out in secondary legislation.|
|Rent element of new residential leases||The rent element of newly granted residential leases will be exempt from tax under LTT. This may reduce some administrative burden for practitioners. Welsh Ministers may, through regulations, make the rent element chargeable if needed.||The rent element of newly granted residential leases is chargeable under SDLT.|
|Higher rates residential property transactions||LTT contains some additional rules for higher rates residential property transactions. These include:|
• The acquisition of certain residential properties are exempt from higher rates where an interest in a dwelling is retained by the buyer pursuant to a court order in cases of divorce or dissolution of a civil partnership;
• Whether a taxpayer owns or acquires a residential property subject to a lease is judged at the end of the effective date of the acquisition of the residential property. This rule includes including a TAAR to prevent taxpayers from manipulating the rule to avoid paying the higher rates;
• A dwelling, purchased and held by a court appointed deputy on behalf of a minor who lacks mental capacity under the Mental Capacity Act 2005, is not deemed to be owned by that child’s parents and is therefore, generally, not subject to higher rates;
• LTT requires an assessment for the higher rates tax liability to be undertaken on ‘intermediate’ transactions (and a further return submitted to WRA if additional tax is due);
• Changes to rules relating to property that is inherited – spouses or civil partners who are no longer living together are not to have their respective interests combined in order to establish whether the interest held exceeds 50%; and
• Clarification of rules in relation to major interests.
|These specific rules do not exist in SDLT legislation.|
For further information, please contact:
Name: Nicola Eaton, Marketing Manager at Commercial Trust
Telephone: 01603 896408
Notes to editors
ABOUT COMMERCIAL TRUST
Commercial Trust Limited is the buy-to-let and commercial brokerage arm of the Norfolk Capital group. Norfolk Capital has been offering financial service solutions in the UK since 1988.
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- Web address: www.commercialtrust.co.uk
- Registered office: St Crispin’s House, Duke Street, Norwich, NR3 1PD
- Registered in England under company reference number 8633445
- Authorised and regulated by the Financial Conduct Authority in the United Kingdom under reference number 610175
- Commercial Trust offers a comprehensive range of mortgages from across the market (but not deals that you can obtain only by going directly to a lender)
- Commercial Trust charges a broker fee. Buy-to-let mortgages: up to £1,198 for first charge and up to 4% for second charge mortgages (subject to a minimum of £1,999 and maximum of £5,199). Commercial mortgages and bridging loans: up to 1% of the loan value for first charge and up to 4% for second charge loans (plus a £299 booking fee). Product transfers and further advances (all products): £299 booking fee.
The buy-to-let mortgages, commercial mortgages and bridging loans brokered by Commercial Trust are not regulated by the FCA.