New Welsh land transaction tax

Welsh land transaction tax (LTT) will replace stamp duty land tax (SDLT) in Wales with effect from April 2018. The new tax is introduced by the Land Transaction Tax and Anti-avoidance of Devolved Taxes (Wales) Act 2017 (the Act), which received Royal Assent on 24 May 2017. It has been confirmed that the tax will be administered and collected by a body called the Welsh Revenue Authority from its commencement.

The new LTT will be substantially the same as the SDLT that it replaces, being charged on the purchase or lease of a building or land in Wales, with mostly comparable reliefs and exemptions to SDLT. It also includes equivalent rules on partnerships and trusts. There are, however, some differences from SDLT, most notably:

• there will be no LTT charged on the rental element on the grant of a residential lease
• the rates and bands have been adjusted to suit the Welsh property market
• there will be no higher 15% rate on the purchase of residential property over £500,000 by a “non-natural person” such as a company
• there will be no equivalent relief to the SDLT relief available for first time buyers, and
• the Welsh Revenue Authority have adopted their own tax avoidance measures with a view to removing all reliefs where the transaction is part of a tax avoidance arrangement and preventing the effectiveness of tax avoidance arrangements in relation to LTT.

The Act contains the main provisions for implementing LTT, however, the rates and bands will be separately implemented by regulations. Whilst taking a similar approach to banding and rates to SDLT, some bands have been set at a lower threshold to adjust for lower property prices in Wales. The notable exception is the nil rate band for residential property, which has been set at a higher level in part to compensate for the lack of any first time buyer relief.

The existence of a separate Welsh tax on land transactions may give rise to issues where the land straddles the border between Wales and England. The Act provides that such a transaction will be treated as two separate transactions, one relating to land in Wales and the other relating to land in England, requiring both an SDLT and an LTT return with an apportionment of the consideration on a just and reasonable basis.

More generally, where a transaction involves a portfolio of properties which have both English and Welsh properties, it will also be necessary to deal with LTT and SDLT separately, giving rise to increased administration and issues over apportionment.