Welsh Land Transaction Tax Summary

The Wales Act 2014 gave the Welsh Government greater devolved powers to manage their own taxation affairs, in particular in relation to business rates, landfill tax and stamp duty. Like the Scots, the Welsh have taken the opportunity to replace UK stamp duty land tax (“SDLT”) with their own form of land transaction tax. Following royal assent being given to the Land Transaction Tax and Anti-avoidance of Devolved Taxes (Wales) Act 2017 on 18 May 2017 (the “Act”), Welsh Land Transaction Tax (“LTT”) will replace SDLT in Wales from April 2018.

LTT will be broadly consistent with SDLT and preserves the underlying structure of SDLT, mirroring key elements such as partnerships, trusts and reliefs, which, according to the Welsh Government, “will provide stability and reassurance to businesses and the property market”. The higher rates of SDLT on purchases of additional residential properties that came into effect on 1 April 2016 will also continue to apply as part of LTT.

LTT will differ from SDLT in the following notable ways:

1. it will not be charged on the rental element on the grant of a residential lease;
2. it will be subject to a tailored general anti-avoidance rule that will enable recovery of tax that has been avoided as a result of an ‘artificial’ tax avoidance arrangement;
3. it will include a specific ‘relief targeted anti-avoidance rule’ that will operate as a single measure applicable to all LTT reliefs and will prohibit a relief from being claimed where the transaction forms part of any tax avoidance arrangement(s); and
4. the rules that relate to the deferral of tax in cases of contingent or uncertain consideration are contained in the Act rather than in secondary legislation.

Rates and bands are yet to be decided, but the Act does set out the procedure for setting these. In particular, the Act specifies that rates must be set for residential, non-residential and higher rate transactions. This includes a zero rate band for residential and non-residential transactions along with at least two more bands above the zero rate. The Welsh Government are to announce the proposed rates and bands by October 2017.

An area of uncertainty arises where a transaction involves land that spans the border of Wales and England. The act envisages a transaction of this type to involve two separate land transactions that take place in each of Wales and England. A return will therefore be required for LTT and SDLT with the consideration to be apportioned on a just and reasonable basis between each transaction.

Overall, the Welsh Government have commented that they have taken the chance to depart from SDLT and introduce LTT to: “simplify land transaction tax; make it fairer; improve its efficiency and effectiveness; and to enable a focus on Welsh needs and priorities”.