SDLT in Wales: Land Transaction Tax

AuthorSian Carter

The Wales Act 2017 provides the National Assembly for Wales with increased powers to legislate on any subject other than those which are reserved to the UK Parliament and, in particular, provides for the devolution of Welsh taxes.

The Land Transaction Tax and Anti-avoidance of Devolved Taxes (Wales) Act 2017 (the Act) is the first tax-specific legislation to be enacted in Wales. The Act received Royal Assent on 24^th May 2017 and makes provisions for the introduction of Land Transaction Tax (LTT), which will replace UK Stamp Duty Land Tax (SDLT) in Wales from April 2018.

The Welsh Government has set up a new public body, the Welsh Revenue Authority (WRA), which will essentially be the welsh equivalent of HMRC. The WRA will undertake the collection and management functions for LTT from April 2018, and will be responsible for promoting compliance, producing guidance to assist taxpayers and their agents in complying with their obligations and resolving complaints and disputes.

The Act: An overview

The Act is divided into 8 Parts containing 8 sections and 22 Schedules.

Part 1: Overview

Provides a summary of the main provisions.

Part 2: The tax and key concepts

Establishes Land Transaction Tax which is to be charged on a “land transaction” meaning “an acquisition of a chargeable interest”.

S3-8

Makes provision about key concepts, including which transactions are “land transactions”, what is and what is not a “chargeable interest” and what is to be regarded as an exempt interest, and when a chargeable interest is acquired or disposed of.

Sets out how the Act applies to land transactions where the chargeable interest involves land partly in Wales and partly in England.

S10-16

Deals with particular transactions including contracts, transfers and exchanges.

S17-23

Clarifies which transactions are deemed chargeable, and the chargeable consideration for a transaction.

Part 3: Calculation of tax and reliefs

S24-29

Sets out how LTT will be calculated, which will be on the basis of a marginal rate calculation (i.e., tax is charged at progressively higher rates on different parts of the consideration) and which is the same method of calculating SDLT under the current rules.

S30

Sets out the reliefs available from LTT.

S31

Provides a clear and targeted anti-avoidance rule (TAAR) which prohibits a relief from being claimed where the transaction forms part of tax avoidance arrangements.

Part 4: Leases

S32

This Part together with Schedule 5 provides how LTT applies to the granting, varying, assigning or surrendering of leases.

Part 5: Application of Act and TCMA to certain persons and bodies

S33-43

This Part sets out how the LTT applies to certain bodies such as companies, partnerships and trusts.

Part 6: Returns and payments

S44

Places a duty on the buyer in a land transaction to make a return to the WRA within 30 days.

S45-46

Defines a notifiable transaction (when a return must be made) and transactions which are exempt from LTT.

S52

Gives the Welsh Ministers the power to amend the period in which returns must be made.

S53-55

Provides that returns must include a declaration by the buyer that the return is correct and accurate.

S56-64

Places the liability for paying LTT on the buyer, and sets out when the tax must be paid and when payments can be deferred.

S65

Makes provisions for registering land transactions.

Part 7: General anti-avoidance rule

S66

Establishes a General Anti-Avoidance Rule (GAAR), which is essentially a mechanism for the WRA to challenge any attempt to exploit Welsh tax legislation where the purpose is to gain an unfair tax advantage by means of an artificial tax arrangement.

Part 8: Interpretation and final provisions

S67-82

Sets out the meaning of key terms referred to through the Act, and includes final provisions.

When will LTT be payable?

Like SDLT, LTT will become payable when you buy or lease a building or land over a certain price, whether it is your first and only property, or an additional property.

Rates of the new LTT

Just like SDLT, the LTT payable will depend on a number of factors, such as the purchase price of the property, whether the property is residential or non-residential and whether the property is freehold or leasehold.

The Welsh Government announced the residential (freehold and leasehold) rates and bands for LTT on 3^rd October 2017, which are as follows:

£0 - £150,000	0%
£150,000 - £250,000	2.5%
£250,000 - £400,000	5%
£400,000 - £750,000	7.5%
£750,000 - £1,500,000	10%
£1,500,000 +	12%

The property price at which LTT becomes payable is higher than for SDLT, however there is a higher rate for higher-priced transactions, with the rate increasing to 7.5% from £400,000 and to 10% from £750,000.

The increase of the threshold at which LTT becomes payable means that the number of transactions that will be liable for LTT is predicted to be much lower than those transactions liable for SDLT. According to Gov.Wales, it is predicted that 45% of transactions will not be liable for LTT, and the average first-time buyer will pay no tax. Essentially, all buyers of residential properties which cost up to £400,000 will pay the same or less tax than under SDLT, which is said to account for around 90% of residential transactions.

For additional residential properties, the higher rate of tax payable will be an additional 3% on top of the main residential rate in each band, which is the same as the current SDLT regime.

The rates and bands for non-residential freehold transactions are as follows:

£0 - £150,000	0%
£150,000 - £250,000	1%
£250,000 - £1,000,000	5%
£1,000,000 +	6%

The rates and bands for non-residential leasehold transactions are as follows:

£0 - £150,000	0%
£150,000 - £2,000,000	1%
£2,000,000 +	2%

LTT will be calculated using a ‘banding approach’ by reference to how much of the consideration falls within each band. For example, if you buy a house in Wales for £275,000 the LTT you owe is calculated as follows:

0% on the first £150,000 = £0
2.5% on the next £100,000 = £2,500
5% on the final £25,000 = £1,250
Total LTT payable = £3,750

This is the same method of calculation as the new SDLT rules for residential properties introduced from 4 December 2014. However, this method of calculation will be used for LTT regardless of whether the property is residential or non-residential.

The current rates and bands for UK SDLT in relation to residential transactions are as follows:

£0 - £125,000	0%
£125,001 - £250,000	2%
£250,001 - £925,000	5%
£925,001 - £1,500,000	10%
£1,500,000	12%

For example, if you buy a house in England for £275,000 the SDLT you owe is calculated as follows:

0% on the first £125,000 = £0
2% on the next £125,000 = £2,500
5% on the final £25,000 = £1,250
Total LTT payable = £3,750

Properties spanning the English – Welsh border

Part 2 S9 sets out how the Act applies to land transactions where the chargeable interest involves land partly in Wales and partly in England. Essentially, LTT will be paid on the proportion of the land in Wales, and SDLT will be charge on the proportion of the land in England, and so it will be necessary to calculate the value of the proportion in each country.

Key changes from SDLT

Although LTT will broadly mirror SDLT, there are a number of key changes. According to the Welsh government, any changes that have been made have been made to either simplify the tax, improve its efficiency and effectiveness, or to enable a focus on Welsh needs and priorities (Gov.Wales).

The Welsh Government have produced a helpful table setting out the key changes (a fuller list will form part of the guidance):

Area of change

Land Transaction Tax

Stamp Duty Land Tax

A ‘General Anti-avoidance Rule’ (GAAR)

The Act introduces a ‘General Anti-avoidance Rules (GAAR), which will enable the 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 introduces 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 LLT. 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 rules includes 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%;

Clarification of rules in relation to major interests.

These specific rules do not exist in SDLT legislation.

If you have any questions in relation to this, please do get in touch.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.