Land Transaction Tax: New Welsh Stamp Duty
On 1 April 2018, Land Transaction Tax (LTT) replaced UK Stamp Duty Land Tax (SDLT) in Wales.
LTT forms part of the new autonomous tax regime that has been implemented in Wales under The Land Transaction and Anti-avoidance of Devolved Taxes (Wales) Act 2017, and will be the first tax system introduced by a Welsh Government in nearly 800 years. The new Welsh Revenue Authority (WRA) will be responsible for the collection and management of the LTT, as opposed to HMRC, who was responsible for the collection of SDLT.
Similarly to SDLT, LTT is payable on the purchase or lease of buildings or land in Wales. However, new rates and bands have been introduced in respect of both residential and commercial property. Tables showing the new threshold and LTT rates are set out below, with differences highlighted in red.
LTT – residential tax rates – freehold
LTT non-residential property main rates – freehold transactions
It should be noted that purchasers of second homes and purchases by companies will be subject to an additional 3% rate, in line with the current SDLT rates.
The LTT is another example of the increasing divergence in statutory regimes between Wales and England.
The starting threshold is now £55,000 higher in Wales. The Welsh Finance Minister’s Statement explains that the rationale behind the amended tax rates is to help those purchasing lower value homes, rather than focusing solely on first-time buyers as is the focus in Westminster. That said, it is estimated that 80% of first-time buyers in Wales will pay no LTT, with statistics suggesting the average purchase price for Welsh first-time buyers is around £135,000.
The need to protect overall revenue collected is evidenced by increased rates for higher value transactions in Wales.
Those purchasing more expensive properties will in many cases pay substantially more than their English counterparts. The tipping point is in the £400,000+ price bracket with the playing field levelling again at £1.5m plus. This is achieved via an additional 7.5% threshold imposed at £400k, with the 10% rate then kicking in at £750k in Wales, £175k earlier than it does for English house-buyers.
Whilst the sentiment behind the new regime may be commended, there is a balance to be struck between that and the effect that the new tax rates have on commercial business. Although the impact of the reforms has yet to be seen, there may well be a decline in commercial property purchases in Wales, with developers being put off by the extra 1% tax, which is not imposed across the border in England; this could even tip the balance of the Welsh economy.