Buildings & Land Transaction Tax Wales

Beginning Apr-18, Land Transaction Tax (LTT) replaced the United Kingdom Stamp Duty Land Tax (SDLT) in Wales.

In a similar manner like SDLT, Land Transaction Tax will have to be paid when an individual leases or purchases a land or building above a specific price.

The new tax rule may have an impact on house purchasers, house sellers and businesses such as property developers, builders, and agents involved in the land dealing process.

The law-giving is mostly in-line with SDLT, protecting the fundamental structure and imaging significant elements such as trusts and reliefs, partnerships, to offer steadiness and guarantee to companies and the property marketplace. Below mentioned are a few amendments to the Land Transaction Tax:

• The tax has been simplified and made fairer
• Improve its proficiency and efficacy
• Emphasis on Welsh requirements and urgencies

Tax rates and tax bands for LTT

There are dissimilar tax bands and tax rates for various kinds of property:

• When an individual purchases a residential property, the below mentioned tax rates will be applicable to the percentage of the price an individual will pay in each band

Transactions with an effective date from 27 July 2020 to 31 March 2021

Price range	Rate of Land Transaction Tax
The portion up to and including £250,000	0% LTT applicable
The portion over £250,000 up to and including £400,000	5% LTT applicable
The portion over £400,000 up to and including £750,000	7.5% LTT applicable
The portion over £750,000 up to and including £1,500,000	10% LTT applicable
The portion over £1,500,000	12% LTT applicable

Transactions with an effective date between 1 April 2018 and 26 July 2020, and on or after 1 April 2021

Price range	Rate of Land Transaction Tax
The portion up to and including £180,000	0% LTT applicable
The portion over £180,000 up to and including £250,000	3.5% LTT applicable
The portion over £250,000 up to and including £400,000	5% LTT applicable
The portion over £400,000 up to and including £750,000	7.5% LTT applicable
The portion over £750,000 up to and including £1,500,000	10% LTT applicable
The portion over £1,500,000	12% LTT applicable

• Let’s understand this with an example: Assume Graham purchases a house which is taxed under residential tax rates and the total payable price is £260,000

  - For the initial £180,000, Graham will pay 0% LTT

  - For the next £70,000, Graham will pay 3.5% LTT = £2,450

  - For the remaining £10,000, Graham will pay 5% LTT = £500

  - Hence, total payable LTT = £2,950

When an individual purchases a residential leasehold property, he/she may be required to pay LTT on the buying price of the contract (referred to as ‘lease premium’) using the LTT rates stated above. However, the individual will not be required to pay LTT on rent payable below the lease for residential property.

• With regards to higher residential tax rates, when an individual purchases a residential property and he/she previously owns one or more residential properties then in such a scenario an individual might have to pay a higher residential rate. However, if an individual is switching the main residence then the higher rates might not be applicable. When corporations purchase residential properties, they will be required to pay higher residential rates, but, when trusts purchase residential properties they might have to pay the higher residential rates. The Land Transaction Tax higher rates are an additional 3% on the main residential rates.
  • Let’s assume, an individual purchases a second home for £260,000, then he/she will pay:

    - 3% on the initial £180,000 = £5,400

    - 6.5% for the next £70,000 = £4,550

    - 8% on the remaining final £10,000 = £800

    - Hence, the total LTT payable = £10,750

  Transactions with an effective date on or after 22 December 2020

  Price range	Rate of Land Transaction Tax
  The portion up to and including £180,000	4% LTT applicable
  The portion over £180,000 up to and including £250,000	7.5% LTT applicable
  The portion over £250,000 up to and including £400,000	9% LTT applicable
  The portion over £400,000 up to and including £750,000	11.5% LTT applicable
  The portion over £750,000 up to and including £1,500,000	14% LTT applicable
  The portion over £1,500,000	16% LTT applicable

  Transactions with an effective date between 1 April 2018 and 21 December 2020

  Price range	Rate of Land Transaction Tax
  The portion up to and including £180,000	3% LTT applicable
  The portion over £180,000 up to and including £250,000	6.5% LTT applicable
  The portion over £250,000 up to and including £400,000	8% LTT applicable
  The portion over £400,000 up to and including £750,000	10.5% LTT applicable
  The portion over £750,000 up to and including £1,500,000	13% LTT applicable
  The portion over £1,500,000	15% LTT applicable

• When an individual purchases a non-residential property such as agricultural land, office space, shops the below mentioned rates will be applicable for a percentage of the price an individual will pay for each band. These rates are also applicable for ‘mixed use’ property – for example a flat on top of a shop – in such a scenario both non-residential property and residential property form part of the same transaction.

Transactions with an effective date on or after 22 December 2020

Price range	Rate of Land Transaction Tax
The portion up to and including £225,000	0% LTT applicable
The portion over £225,000 up to and including £250,000	1% LTT applicable
The portion over £250,000 up to and including £1,000,000	5% LTT applicable
The portion over £1,000,000	6% LTT applicable

Transactions with an effective date between 1 April 2018 and 21 December 2020

Price range	Rate of Land Transaction Tax
The portion up to and including £150,000	0% LTT applicable
The portion over £150,000 up to and including £250,000	1% LTT applicable
The portion over £250,000 up to and including £1,000,000	5% LTT applicable
The portion over £1,000,000	6% LTT applicable

• Let’s assume, an individual purchases a shop for £400,000, then he/she will pay:

  - 0% on the initial £150,000 = £0

  - 1.0% for the next £100,000 = £1,000

  - 5% on the remaining final £150,000 = £7,500

  - Hence, the total LTT payable = £8,500

• When an individual purchases a non-residential leasehold property, he/she might need to pay Land Transaction Tax on the buying price of anew contracted lease (referred to as ‘lease premium’). However, if an individual pays rent on the funding of a lease, rules might eliminate the 0% threshold. The rent above the term of an afresh approved lease may be accountable to LTT and is computed on its net present value (NPV).

Transactions with an effective date on or after 22 December 2020

Price range	Rate of Land Transaction Tax
The portion up to and including £225,000	0% LTT applicable
The portion over £225,000 up to and including £2,000,000	1% LTT applicable
The portion over £2,000,000	2% LTT applicable

Transactions with an effective date between 1 April 2018 and 21 December 2020

Price range	Rate of Land Transaction Tax
The portion up to and including £150,000	0%
The portion over £150,000 up to and including £2,000,000	1%
The portion over £2,000,000	2%

• Let’s assume, an individual is approved of an office lease with a NPV of £170,000, then he/she will pay:

  - 0% on the initial £150,000 = £0

  - 1.0% for the next £20,000 = £200

  - Hence, the total LTT payable = £200

How to avoid Land Transaction Tax

An individual might avoid paying Land Transaction Tax (LTT) if he/she purchases a property as their prime residence for an amount below £180,000. As a matter of fact, this might not be possible for many homebuyers. However, there are other situations where it is possible to pay no LTT or pay it at a reduced rate:

• Property price marginally above rate band: In case the price of the property is slightly above the threshold, the buyer can have a discussion with the broker/seller if it will be possible to accept a somewhat lower price.
• Property transfer in divorce or separation: If an individual is separating or giving divorce to his/her partner or spouse as part of an arrangement or court order, there will be no Land Transaction Tax payable if an individual transfers a percentage of their property’s value. If joint holders are not in a civil partnership and unmarried some percentage of Land Transaction Tax might be applicable.
• Transfer of deeds: If an individual has inherited property or land under the conditions of a will, he/she will not be required to inform Welsh Revenue Authority and will not be required to pay LTT. This is applicable even if an individual takes on an unresolved mortgage on the possession (on the date the property owner passed away). If an individual receives a property as a gift, again, he/she will not be required to pay LTT as long as there’s no unsettled mortgage on it. Inherited mortgage can result in payment of LTT if the amount of mortgage is above the LTT!

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.