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Are you ready for Welsh Land Transaction Tax? Transitional provisions passed and guidance released


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Summary: Regulations have now been passed confirming the introduction of Welsh Land Transaction Tax on 1 April 2018. Rates have been confirmed, and transitional provisions introduced to ensure that the SDLT/LTT interface works properly. The Welsh Revenue Authority has also released its initial guidance, although there are still a number of uncertainties which taxpayers will need to navigate until further guidance is released.

Regulations were passed on 21 February 2018 for the Welsh Land Transaction Tax to come into force on 1 April 2018. This follows the passing of transitional measures by Welsh Ministers on 31 January, and the release of the Welsh Revenue Authority’s initial guidance on 20 February.

The measures passed include:

Tax rates

After a long period of consideration, and one public revision, the LTT bands and rates have been enshrined in law.

For purchasers of high-end commercial property in Wales, tax rates will be higher than those in England, with an additional 1% payable on consideration over £1m (i.e. a 6% rate). Equally, commercial rents with a net present value between £2m-£5m will see an additional 1% charge (i.e. a 2% rate).

Unsurprisingly, in the residential sector the rates are intended to stimulate activity at the lower end of the property market. LTT bills are lower for those purchasing residential properties below £180k, while those purchasing Welsh properties worth over £400k will suffer more tax than their counterparts buying in England. Interestingly, one marked difference from SDLT is the abolition of tax on the rental element of exclusively residential leases – LTT does not tax this.

For those facing a potential LTT charge, the Welsh Revenue Authority has released a calculator on its website. This broadly mirrors HMRC’s SDLT calculator, but appears slightly more sophisticated (amongst other things, it takes into account the additional 3% rate for purchasers of additional residential properties).

See a summary of the rates and a comparison to SDLT.


LTT will come into force on 1 April 2018, but may tax transactions which have exchanged prior to that date.

This will depend primarily on whether the date of exchange is on/before, or after, 17 December 2014. However, the transitional provisions also take into account any variations/subsales/exercises of options etc.

Where a transaction is substantially performed prior to 1 April 2018 (and SDLT paid at that date), but the transaction completes on or after 1 April 2018, the taxpayer may also be required to pay a “top-up” LTT payment where the LTT chargeable is greater than the SDLT paid.

See a flowchart detailing the circumstances in which LTT will apply to a transaction.

Transitional provisions

The Welsh Government has also passed a number of transitional provisions to ensure that the interface with SDLT will work properly for transactions/series of transactions which span the change from SDLT to LTT.

LTT overlap relief (effectively giving credit for previously paid tax on rents) may still be available where the initial lease was subject to SDLT. Meanwhile, variations to increase the amount of rent payable under an SDLT lease over Welsh property may be treated as the grant of a new LTT lease.

Specific provisions have been included to accommodate alternative property finance arrangements and alternative finance bonds, while the partnership rules broadly follow the SDLT partnership provisions.

There do still appear to be a number of uncertainties in the transitional provisions as currently drafted. For example, the 90% consideration rule for substantial performance has not been imported from SDLT, so “substantial” is currently undefined.

Preparing for the future

LTT is clearly not perfect at present but, as with SDLT, we expect this to be alleviated via further WRA guidance and to evolve as time progresses. In the meantime, taxpayers will need to make do with what is available to them.

In any event, with the Welsh Government set to propose a Welsh Land Value Tax, and gaining Income Tax powers from 2019, the Welsh tax system is set to grow, and to become increasingly sophisticated, over the next couple of years.


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