In November I’m buying a new house in Bridgend. I’ve already exchanged and now they just have to build it!
It’s an exciting time for me…. getting to choose kitchens, flooring and extras. But, it’s also an expensive step, up-sizing, increasing my mortgage and obligations and, as a financial planner, it’s been really important for me that I know I’ve crunched the numbers and worked out the initial cost of the move, as well as the longer-term effect this will have on my financial plan.
Up front non-refundable costs I will have include, deposit, solicitor’s costs, surveyor and estate agent fees and – of course – land tax.
From 1st April 2018, Land Transaction Tax (LTT) has replaced UK Stamp Duty Land Tax (SDLT) for properties purchased in Wales.
Like SDLT, LTT will be payable when you buy or lease a building or land over a certain price in Wales (that complete on or after 1st April 2018). Different rates will apply depending on weather the property is residential or commercial.
Whilst is will be broadly similar to SDLT, there are some notable differences:
- The starting threshold for LLT for residential property will be £180,000 in contrast to £125,000 for SDLT, however, LTT will be higher than SDLT for properties valued between £400,000 and £925,000.
- There will be no LLT payable on the rental element of residential leases.
- There will be no relief from LTT for first time buyers.
As with SDLT, higher rates of duty will apply on purchases of additional residential properties but relief will be available from the higher rate, currently 3%, where a main residence is being replaced.
Where a second or additional property is acquired to replace a main residence, but completes before the sale of the original main residence, providing the sale takes place within 3 years it will be possible to reclaim the extra 3% charge from the Welsh Revenue Authority.
LTT main residential tax rates – freehold transactions
When you buy a residential property the following rates will apply to the portion of the price you pay in each band.
| Price threshold | LTT rate |
| The portion up to and including £180,000 | 0% |
| The portion over £180,000
up to and including £250,000 |
3.5% |
| The portion over £250,000
up to and including £400,000 |
5% |
| The portion over £400,000
up to and including £750,000 |
7.5% |
| The portion over £750,000
up to and including £1,500,000 |
10% |
| The portion over £1,500,000 | 12% |
For example, if you buy a house to which the main residential rates apply for £260,000, you will pay 0% on the first £180,000, 3.5% on the next £70,000 and 5% on the final £10,000 – the total LTT will be £2,950.
Second property higher rates
When you buy a residential property and you already own one or more residential properties you may need to pay the higher residential rates. However, if you are replacing your main residence the higher rates may not apply.
When companies buy residential properties, they will have to pay the residential higher rates and when trusts buy residential properties they may have to pay the residential higher rates.
The LTT higher rates are 3% on top of the main residential rates.
For example, if you buy a second home for £260,000 you will pay 3% on the first £180,000, 6.5% on the next £70,000 and 8% on the final £10,000 – the total LTT will be £10,750.
So, what does this mean for me? (to show you a worked example)
For a property valued at £199,000 I will pay LTT on £19,000 of the purchase price at 3.5%. That’s £665.
The same calculation under SDLT rules would have been to pay 2% on anything over £125,000 up to £250,000, in my case £1,480. So the change has saved me £815!
However, once the property value is over £400,000, it will be more expensive. For example, a home valued at £550,000 will pay LTT of £21,200 and SDLT of £17,750.
Note: Property straddling Wales and England!
Where a property straddles the border between Wales and England, the amount of tax payable will be apportioned on a just and reasonable basis between LTT and SDLT. It will be necessary, in this situation to file two returns and a valuation of the property will need to include some comment to be able to deal with the just and reasonable apportionment.
Further details and commercial property rates can be found here: http://gov.wales/funding/fiscal-reform/welsh-taxes/land-transaction-tax/?lang=en
If you have any questions, please do contact the Magenta team.
Magenta is not a taxation or legal expert and this information is based on the understanding of The Land Transaction Tax and Anti-avoidance of Devolved Taxes (Wales) Act and guidance provided on the www.gov.wales website.