What is Land Transaction Tax (LTT) and how will it affect me?

In Wales, from April 2018, Stamp Duty Land Tax will be being replaced by Land Transaction Tax.

This change has come about because the funding the Welsh Government receives from Stamp Duty Land Tax (SDLT) receipts are being withdrawn.

As a result, the Welsh Government have set up a new public body, The Welsh Revenue Authority (WRA) and brought forward the proposed Land Transaction Tax regime to fill this funding gap.

That’s lovely, but what actually is Land Transaction Tax (LTT)?

Land Transaction Tax will be very similar to the Stamp Duty Land Tax that it is replacing.

It will be paid when you purchase a leasehold or freehold property or land within Wales from 1 April 2018. So, HMRC will no longer be accepting any Stamp Duty Land Tax (SDLT) returns for land purchases in Wales with an effective date of transaction of or after 1 April 2018.

How is Land Transaction Tax calculated?

Just like Stamp Duty, Land Transaction Tax will be applied in bands against the value of the property.

For residential properties, these bands are:

Price Threshold Main resident rates

£0 – £180,000 0%

£180,001 – £250,000 3.5%

£250,001 – £400,000 5%

£400,001 – £750,000 7.5%

£750,001 – £1.5 million 10%

£1.5 million plus 12%

If you are purchasing a non-residential property, the bands are:

Price Threshold Rates

£0 – £150,000 0%

£150,001 – £250,000 1%

£250,001 – £1 million 5%

£1 million plus 6%

What happens if I purchase a second property?

If you are purchasing an additional property (so this will not be your main residence) or if you are purchasing the property through a Company, an additional 3% will be added to each band.

Like with Stamp Duty, this 3% will be applied to any additional property that you purchase.

So, if you already own a share in another property, that property will be considered your main residence for Land Transaction Tax purposes. And the 3% surcharge applied to your new purchase.

What happens if I purchase another property, but I haven’t sold my current one yet?

Again, like with Stamp Duty, Land Transaction Tax relief will be available to cover these scenarios.

You will have three years to sell your original property, provided the second one has been purchased with the intention of becoming your main residence. This could be useful if you are about to embark on a renovation project and still need your original property to live in whilst the work is undertaken.

Are there any benefits to Land Transaction Tax over Stamp Duty?

There is possibly one and that is in the banding.

Under Land Transaction Tax, any property with a value of under £180,000 will be exempt however, under Stamp Duty this was a lower figure of £125,000.

This higher initial band of £180,000 with a Land Transaction Tax rate of 0%, will mean that quite a few buyers in Wales could save up to £1,100 compared to those in England.

However, it may be worth noting that under Stamp Duty, the next band of £125k to £250k was 2%, where as under Land Transaction Tax it is 3.5%.

To put this into perspective, if you were to purchase a property for £250,000 in Wales, you will be paying £50 less than if you bought a £250,000 in England.

If you are looking to build a property portfolio and would like to read more about the 3% surcharge, then you can read more about this here: https://www.est-accountants.co.uk/blogs/105-will-you-be-affected-by-the-3-stamp-duty-sdlt-surcharge

Or, if you are considering the tax implications of becoming a landlord, please contact us to arrange a meeting.