What is the Welsh Land Transaction Tax?
Stamp Duty land tax was replaced by Land Transaction Tax in April 2018 and is collected by the Welsh Revenue Authority. Welsh Land Transaction Tax is a tax you might have to pay if you buy a piece of land or residential property in Wales.
The change was made to make the system more efficient, simpler and more fair, as well as it being more focused on Welsh priorities and needs. This shift also meant that all income from the Land Transaction Tax goes directly to Wales instead of going to the HMRC like the rest of the Stamp Duty in the UK. However Land Transaction Tax still remains similar to Stamp Duty, with it being a payment from the buyer to the government when purchasing a property.
You pay the Welsh land transaction tax when you:
• buy a freehold property
• buy a new or existing leasehold
• are transferred land or property in exchange for payment, for example, you take on a mortgage or buy a share in a house
Land Transaction Tax Changes and Rates
Just like Stamp Duty you pay different rates of Land Transaction Tax depending on the value of the property. The main difference to Stamp Duty is the tax bands. The tax rates and bands are set by the Welsh Government and approved by Welsh Parliament.
What do these changes mean for homeowners?
No tax was previously paid on properties in Wales selling for under £180,000 but the Government has now extended the threshold up to £250,000. The rates then increase to 5% up to the property value of £400,000, 7.5% up to £750,000, 10% up to £1,500,000 with any amount thereafter taxed at 12%. First time buyers in Wales don’t get any exemptions or discounts on Land Transaction Tax. This is a contrast to the Stamp Duty system in England, where first time buyers buying a property costing £300,000 or less are not required to pay tax. Those buying a property between £300,00 and £500,000 are also charged a reduced rate.
Jamie Tulloch from Fine & Country Welshpool, says: "While the change in LTT will definitely have some impact on the market, I see it as more of a bonus than an incentive. I don't think the change to LTT will have as much of a difference here in Wales, as it would if you were buying in England, but a lot of buyers are heading to Wales because they want to escape to the country. People who have made the decision to move here have done so for reasons other than the changes in LTT, but it will make it more attractive and will be financially beneficial."
Purchasing additional residential properties
Those buying second properties, or buy-to-let properties will be required to pay a higher rate of Land Transaction Tax on any properties costing over £40,000. However, if you sell your first home or buy-to-let property within 36 months of purchasing it you can claim back the higher rates you paid. However the rules in regards to additional residential properties are complex, so always refer to guidance from the WRA.
If you are replacing your main residence, the higher rates may not apply.
While the LTT may help first-time buyers get into the market, whether it will have any impact on property sales above the £250,000 will remain to be seen. Specific first-time buyer relief is not currently available under the LTT system.
How to pay Land Transaction Tax
Land Transaction Tax is collected by the Welsh Revenue Authority, and must be paid within 30 days of the day after completion. The payment can be made digitally or by cheque. If you have a conveyancing solicitor they will complete this as part of their service and inform you of how much has to be paid.
Fine & Country agents share their thoughts
Tom Hope from Fine & Country Swansea, says: "Whilst to a large extent, Fine & Country property buyers won't financially benefit greatly, the main advantage is that the increase of the LTT threshold being kept in place until March 2021 will perpetuate the number of property transactions during what is usually a quieter late Autumn through to early Spring and this increased activity will follow the price range up to the upper quartile and influence our main market - well at least that's the plan!"
According to Tulloch, buyers being able to view occupied properties will have a greater impact on the market than the LTT change. He says that since agents have been able to do viewings on vacant properties in Wales there has been a lot of activity in the market, he predicts there will be far more once agents are allowed to do viewings on occupied properties. "We have been given the indication that we will start to be able to do viewings on occupied properties from 27 July and I have a long list of buyers who are eager to make appointments to view properties as soon as they can," he says. "I think there is going to be a large number of Sales Agreed once we are given the green light for buyers to view occupied homes."
He notes that his office has been able to agree some sales during the lockdown through virtual viewings, but the majority of people are waiting to be able to view the property in person before making their final decision. "There is a lot of demand and new vacant properties are selling within 10 days of listing. On one vacant property, we have had 11 viewings booked in within the first five days of listing. The demand is there, so once people can view occupied properties, the market will boom and many buyers will be able to benefit from the LTT change," he concludes.
Use our Online Calculator to find out how much LTT you will have to pay for your new home.