New Welsh Land Transaction Tax
02 November 2017
From April 2018, Wales will have a new tax known as Land Transaction Tax (LTT), its own version of Stamp Duty Land Tax (SDLT). LTT mirrors much of the SDLT regime and many of the SDLT rules have been incorporated into the Land Transaction Tax and Anti-avoidance of Devolved Taxes (Wales) Act 2017 (businesses and tax practitioners have emphasised the need for consistency between SDLT and LTT), but there are differences which the Welsh Government say make the tax simpler and fairer, and improve its efficiency and effectiveness.
The 2017 Act also introduces a targeted anti-avoidance rule (TAAR), in relation to claiming reliefs from LTT; and in addition a general anti-avoidance rule (GAAR), in relation to Welsh devolved taxes (currently LTT and Landfill Disposals Tax).
What will it mean?
LTT will be a tax on the transactions in land and buildings transactions in Wales. A land transaction will be the acquisition of a chargeable interest and the tax residence of the purchaser or tenant will be irrelevant. Therefore if the purchaser or tenant resides outside Wales they will still be caught by the LTT legislation and will be responsible for paying LTT.
LTT is primarily based on current SDLT legislation and some of its key features include the following:
- it will be calculated using new rates and bands which have been published for residential and commercial property transactions
- the new rates are “progressive” meaning that buyers of lower value properties will pay less LTT compared to SDLT, whilst the buyers of more expensive properties will pay, in some cases, substantially more LTT than SDLT
- an additional 3% charge will remain for the purchasers of additional residential properties as well as charging a higher rate for residential acquisitions by non- individuals.
- there will be no higher 15% rate, on the purchase of residential property over £500,000 by a non-individual as this is not seen as relevant for LTT
- the rent element on the grant of any new residential lease will be exempt from tax under LTT
- transactions involving cross-border properties will need to submit both a SDLT and a LTT return with consideration apportioned on a ‘just and reasonable’ basis
- LTT will not be charged on exempt interests. This includes security interests (i.e. licences, mortgages, tenancies at will or franchises)
- many of the reliefs will be the same as for SDLT (e.g.. for multiple dwellings relief, group transactions, social housing and charities)
- the introduction of targeted (TAAR) and general (GAAR) tax avoidance rules to simplify the tax and make it fairer
- substantial performance i.e possession of the whole or substantially the whole of the land or where a substantial amount of the consideration is paid will trigger the time limit for payment of LTT and filing of the return.
- The special partnership rules applicable to SDLT have been incorporated into LTT provisions
General Anti- Avoidance Rule (GAAR)
- GAAR will enable the Welsh Revenue Authority to recover any devolved tax that has been avoided as a result of an ‘artificial’ tax avoidance arrangement
- GAAR will apply where obtaining a tax advantage is the main or one of the main purposes of the arrangement or where the arrangement lacks genuine economic or commercial substance other than the obtaining of a tax advantage
- It only applies to devolved taxes and therefore from 1 April 2018 it will only apply to LTT and LDT
Targeted Anti- Avoidance Rules (TAAR)
- No LTT reliefs will be available in relation to a land transaction which is, or forms part of, a tax avoidance arrangement or where the main purpose or one of the main purposes is the obtaining of a tax advantage
- The tax avoided will include LTT, income tax, corporation tax, capital gains tax, SDLT but will not include inheritance tax
How will LTT be collected?
The Welsh Revenue Authority (WRA) which is the equivalent to HMRC will deal with the administration and collection of LTT. LTT will have its own separate filing system operated by the WRA rather than at HMRC. The new system will contain online forms and payment facilities for the filing of LTT returns and the payment of LTT. Electronic filing may also be encouraged by the Welsh government.
Other Welsh taxes
From April 2018, landfill tax will be replaced by the new Welsh Landfill Disposals Tax (LDT). Like landfill tax, LDT will be a tax on the disposal of waste to landfill and will be charged by weight, though it has a wider scope in that it also applies to unauthorised disposals (at a higher rate).
The Welsh Government has announced plans to explore the possibility of four new devolved taxes in the autumn, with one to be put to the UK government in 2018. One possibility is a tax on vacant land.