From 1 April 2018, property transactions in Wales will be subject to the new land transaction tax (operated by the newly-created Welsh Revenue Authority) rather than stamp duty land tax.
The restoration of tax-raising powers to Wales after several centuries marks a significant step on the devolution path. But while the new land transaction tax (LTT) incorporates many of the principles of stamp duty land tax (SDLT), different amounts of tax will be payable on property transactions from April depending on whether the property is situated in England or in Wales.
At the time of writing, we still await much of the paraphernalia that the new tax will inevitably require. There is no official online LTT calculator and we have not seen the form of the return that will have to be submitted. The ‘detailed guidance’ on the website of the newly-created Welsh Revenue Authority does not yet reach 100 words. But we do at least now know how much tax is going to be payable, subject to ratification by the National Assembly.
The Welsh Government originally published its proposed rates and bands for LTT in October 2017. However, in December 2017 it revised its proposals for residential purchases in light of the SDLT relief for first-time buyers introduced by the autumn statement. Since the price paid by the average first-time buyer in Wales (a little over £130,000) is much lower than in England, Wales has responded by increasing the nil-rate band for everyone rather than giving specific relief to first-time buyers.
Specific points to note:
- Housebuyers will pay less tax in Wales on cheaper properties and more tax on expensive properties. The tipping point for residential properties is £402,000
- The Welsh Government estimates that around 80% of first-time buyers in Wales will pay no LTT, while only 10% of homebuyers will pay more tax under LTT than they would have done under SDLT
- As with SDLT, LTT rates will be 3% higher for the purchase of additional residential properties
Specific points to note:
- Buyers of non-residential property will also pay less tax in Wales on cheaper properties and more tax on expensive properties. The tipping point for non-residential properties is £1.1 million
- On non-residential leases, the higher 2% rate will apply to any net present value above £2 million (compared to £5 million under SDLT)
In the short term, anyone who is purchasing a residential property in Wales with a purchase price above £402,000, or a commercial property with a purchase price above £1.1 million or a net present value above £2 million, should endeavour to conclude the transaction before LTT replaces SDLT on 1 April 2018.
In the longer term, it will be interesting to see how far LTT diverges from SDLT and the impact this has on the property market, both in Wales itself and in those areas of England that lie closest to it.