Wales changes from Stamp Duty to Land Transaction Tax
Wales has transformed the way it taxes property purchases, replacing stamp duty with a new Land Transaction Tax (LTT).
As of April 1 2018, UK Stamp Duty Land Tax (SDLT) has been replaced by LTT, with tax payable when people buy or lease a building or land over a certain price.
The change follows in the footsteps of Scotland, who replaced stamp duty with the Land and Buildings Transaction Tax (LBTT) on April 1 2015.
It will impact on buyers, sellers, builders, developers, agents and those involved in the transaction process such as solicitors and conveyancers.
The change follows in the footsteps of Scotland, who replaced stamp duty with the Land and Buildings Transaction Tax (LBTT) on April 1 2015.
It will impact on buyers, sellers, builders, developers, agents and those involved in the transaction process such as solicitors and conveyancers.
Why has the change been made?
The Welsh government has introduced the new legislation – which is broadly similar to the existing SDLT while differing in a number of ways – to ‘provide stability and reassurance to businesses and the property market’.
The underlying structure of SDLT has been kept to, with key fundamentals such as partnerships, trusts and reliefs mirrored by the new system.
At the same time, a number of changes have been carried out to ‘simplify the tax and make it fairer’, ‘improve its efficiency and effectiveness’ and ‘focus on Welsh needs and priorities’.
Responsibility for the collection of the tax falls upon the Welsh Revenue Authority (WRA), with the body providing a handy calculator on its website to allow buyers to work out how much LTT they will need to pay for Welsh transactions completed on or after April 1 2018.
The additional 3% surcharge on second homes and buy-to-let investments, introduced on April 1 2016, will still apply as part of the new legislation. As a result, if you already own one or more residential properties you may need to pay a higher rate on your latest transaction, but if you are simply replacing your main residence these higher rates may not apply.
It’s also important to note that certain other purchases may require different levels of tax, including linked transactions, acquisitions involving multiple dwellings, persons exercising collective rights and acquisitions of relief.
The underlying structure of SDLT has been kept to, with key fundamentals such as partnerships, trusts and reliefs mirrored by the new system.
At the same time, a number of changes have been carried out to ‘simplify the tax and make it fairer’, ‘improve its efficiency and effectiveness’ and ‘focus on Welsh needs and priorities’.
Responsibility for the collection of the tax falls upon the Welsh Revenue Authority (WRA), with the body providing a handy calculator on its website to allow buyers to work out how much LTT they will need to pay for Welsh transactions completed on or after April 1 2018.
The additional 3% surcharge on second homes and buy-to-let investments, introduced on April 1 2016, will still apply as part of the new legislation. As a result, if you already own one or more residential properties you may need to pay a higher rate on your latest transaction, but if you are simply replacing your main residence these higher rates may not apply.
It’s also important to note that certain other purchases may require different levels of tax, including linked transactions, acquisitions involving multiple dwellings, persons exercising collective rights and acquisitions of relief.
What are the tax rates and tax bands for LTT?
Different tax rates and bands apply for different types of property,with all being approved by the National Assembly for Wales.
When buying a freehold residential property in Wales, the following rates will now apply to the portion of the price you pay in each band:
Up to an including £180,000 - LTT rate 0%
Over £180,000, up to and including £250,000 – LTT rate 3.5%
Over £250,000, up to and including £400,000 – LTT rate 5%
Over £400,000, up to and including £750,000 – LTT rate 7.5%
Over £750,000, up to and including £1.5 million – LTT rate 10%
Over £1.5 million – LTT rate 12%
To put this into context, here’s a quick example of the new tax rates in action. If you’re purchasing a home for £260,000, you’ll pay 0% on the first £180,000, 3.5% on the next £70,000 and 5% on the remaining £10,000 – equalling a total tax bill payable of £2,950.
For leasehold transactions, the same rates above will apply. However, if you are a landlord or buy-to-let investor eager to expand your portfolio, you will have to pay the extra 3% surcharge in line with the rest of the UK.
Meanwhile, companies purchasing residential properties will have to pay the higher residential rates, while trusts buying up residential properties may also be taxed more. The WRA tax calculator is again on hand to clear up any confusion if it exists.
When buying a freehold residential property in Wales, the following rates will now apply to the portion of the price you pay in each band:
Up to an including £180,000 - LTT rate 0%
Over £180,000, up to and including £250,000 – LTT rate 3.5%
Over £250,000, up to and including £400,000 – LTT rate 5%
Over £400,000, up to and including £750,000 – LTT rate 7.5%
Over £750,000, up to and including £1.5 million – LTT rate 10%
Over £1.5 million – LTT rate 12%
To put this into context, here’s a quick example of the new tax rates in action. If you’re purchasing a home for £260,000, you’ll pay 0% on the first £180,000, 3.5% on the next £70,000 and 5% on the remaining £10,000 – equalling a total tax bill payable of £2,950.
For leasehold transactions, the same rates above will apply. However, if you are a landlord or buy-to-let investor eager to expand your portfolio, you will have to pay the extra 3% surcharge in line with the rest of the UK.
Meanwhile, companies purchasing residential properties will have to pay the higher residential rates, while trusts buying up residential properties may also be taxed more. The WRA tax calculator is again on hand to clear up any confusion if it exists.
Who are the winners and losers of the new tax?
Now LTT has come into effect, the question of who will be the winners and losers from the new system has reared its head.
According to new research, the average buyer in Wales will be £560 better off as a result of the changes. However, buyers purchasing a house worth over £402,000 will be negatively affected (and worse off) thanks to the newly introduced legislation.
Buyers in Powys will witness the biggest savings (£1,095), the research found, closely followed by Ceredigion and the Isle of Anglesey. The average buyer in these locations will save £1,088 and £1,064 respectively under LTT rules.
Savings are also significant in Wales’ biggest cities, including Cardiff (£799), Newport (£800) and Swansea (£351), as well as popular locations such as Pembrokeshire (£827), Flintshire (£853) and Wrexham (£567).
While areas where average prices are below the stamp duty threshold will witness no change (they were paying £0 before and will still be paying £0 now), second home owners will pay less with the higher rate if the property they are purchasing is below £402,000.
By contrast, higher value properties will be hit with higher taxes. A home worth £1 million, for example, will accumulate £61,200 in LTT compared to only £43,750 in stamp duty.
According to new research, the average buyer in Wales will be £560 better off as a result of the changes. However, buyers purchasing a house worth over £402,000 will be negatively affected (and worse off) thanks to the newly introduced legislation.
Buyers in Powys will witness the biggest savings (£1,095), the research found, closely followed by Ceredigion and the Isle of Anglesey. The average buyer in these locations will save £1,088 and £1,064 respectively under LTT rules.
Savings are also significant in Wales’ biggest cities, including Cardiff (£799), Newport (£800) and Swansea (£351), as well as popular locations such as Pembrokeshire (£827), Flintshire (£853) and Wrexham (£567).
While areas where average prices are below the stamp duty threshold will witness no change (they were paying £0 before and will still be paying £0 now), second home owners will pay less with the higher rate if the property they are purchasing is below £402,000.
By contrast, higher value properties will be hit with higher taxes. A home worth £1 million, for example, will accumulate £61,200 in LTT compared to only £43,750 in stamp duty.
Will the rest of the UK follow Wales and Scotland?
It seems unlikely that the current stamp duty system in England and Northern Ireland, which was transformed as recently as December 2014, will be changing anytime soon – but the savings made by buyers in Wales and Scotland may start to ramp up the pressure on Theresa May and her government to change tack.
There has recently been an overhaul of stamp duty for first-time buyers – with the majority now paying nothing when buying their first home – but the calls have been loud for stamp duty changes or a stamp duty holiday for a number of other demographics, while the additional 3% stamp duty surcharge on second homes continues to be highly contentious more than two years after its implementation.
For now, though, the changes made in Wales are unlikely to be reflected in England or Northern Ireland.
There has recently been an overhaul of stamp duty for first-time buyers – with the majority now paying nothing when buying their first home – but the calls have been loud for stamp duty changes or a stamp duty holiday for a number of other demographics, while the additional 3% stamp duty surcharge on second homes continues to be highly contentious more than two years after its implementation.
For now, though, the changes made in Wales are unlikely to be reflected in England or Northern Ireland.
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