What is Land Transaction Tax and What Does It Mean for Developers?

Stamp Duty: a necessary evil for all property purchasers. However, in Wales it was recently scrapped for first time buyers and properties up to £300,000 in value, which the government claimed would help 95% of buyers.

This month, there were more changes. Stamp Duty Land Tax (SDLT) has officially been replaced in Wales with Land Transaction Tax (LTT). Here we discuss how this will affect property developers in the area.

What is Land Transaction Tax and How is it Different?

Land Transaction Tax must be paid on all residential properties sold in Wales on or after April 1st 2018.

Collected and managed by the non-ministerial department of the Welsh Government, Welsh Revenue Authority (WRA), this will work in a similar way to Stamp Duty and will be a charge paid by purchasers of a freehold or leasehold property.

The amount paid for each property will depend on the land tax band and the type of property, for example:

Residential property tax bands –

£0-£180k – 0%
£180,001-£250,000 – 3.5%
£250,001-£400,000 – 5%
£400,001-£750,000 – 7.5%
£750,001-£1.5m – 10%
£1.5m-plus – 12%

Non-residential property tax bands –

£0-£150,000 – 0%
£150,001-£250,000 – 1%
£250,001-£1million – 5%
£1 million-plus – 6%

Generally, the new Land Transaction Tax rates are good news for those purchasing low value property, and bad news for those purchasing at the upper end of the scale.

For example, those buying commercial property valued between £150,000 and £250,000 will pay half the amount previously owed under SDLT, but buyers of property worth more than £1 million will pay 1% more.

What Does This Mean for Property Developers?

Currently, the majority of published guidance revolves around residential property and there a few key things to bear in mind. The first is, if you will be purchasing residential properties as a company, or personally as an additional property, the higher rate of LTT will apply. This is 3% on top of the main residential rate.

The second is there will be no special rates for first time buyers which could deter some young buyers from affordable homes, despite being lower than the SDLT which ended in November 2017.

The latest Royal Institution of Chartered Surveyors (RICS) Residential Market Survey has showed an overall upwards trend in the housing marketing in Wales over the first quarter of the year, and sales are expected to increase until June. However, it remains to be seen what affect this tax change will have on the market.

One thing is for certain, if you build and develop property across the UK, another tax system will likely cause you an administrative headache as you get to grips with the system.

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Article By Tom Lee

April 17th, 2018

Tom heads up the development division at Pure. He has over 20 years of experience in the financial sector and since joining Pure in 2013, has become an integral part of the business’s growth and direction.

Tom has a wealth of experience providing debt advisory on large, complex deal structures for developers and investors across all asset classes, throughout the UK.

He has built a strong network across the property and finance sector, which enables him to provide a total package solution to his clients and contacts, with whom he has built long standing relationships.

See more articles by Tom

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