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Land Transaction Tax: A Complete Guide

Published by Rita Bista
Posted Date: June 14, 2024 , Modified Date: June 14, 2024

Land Transaction Tax (LTT) is a tax you might have to pay when you buy or lease property or land over a certain price threshold in Wales. It replaced Wales's Stamp Duty Land Tax (SDLT) from 1 April 2018. Some aspects of LTT and SDLT are the same, but LTT also has some new features that distinguish it from SDLT.

LTT is usually payable in the following situations:

  • Purchase of freehold property
  • Purchase of new or existing leasehold
  • Transfer of land or property in exchange for consideration.

LTT is a self-assessed tax. The taxpayer must complete and submit an accurate tax return and pay any tax due. In this article, we will offer thorough guidance on LTT (Land Transaction Tax), including relief options, applicable rates, refund criteria, and the step-by-step process to ensure you meet deadlines and navigate tax obligations seamlessly.

Land Transaction Tax (LLT) Rates

LLT rates are different for residential and non-residential property.

The amount of LLT you pay also depends on the property's purchase date and the consideration paid for it. Consideration paid refers to the monetary value or equivalent assets exchanged directly or indirectly by the buyer or individuals associated with them during the transaction.

Rates for Residential Property

Residential tax rates are only applicable when purchasing residential property for the first time or replacing the main residence.

 The main residential tax rates are as follows:

Purchase Price

LLT Rate

Up to £225,000

0%

£225,001 to £400,000

6%

£400,001 to 750,000

7.5%

£750,001 to £1.5 Million

10%

Over £1.5 Million

12%

Example 1, 

Mr Alex purchased a residential property for £2 million on 2nd February 2023. He will occupy the property as his main home.

The LTT would be computed as follows:

0% on first £225,000

£0

6% on the next £175,000

£10,500

7.5% on the next £350,000

£26,250

10% on the next £750,000

£75,000

12% on the next £500,000

£60,000

Total LTT

£171,750

Higher Residential Tax Rates

Higher rates are applicable when individuals owning more than one residential property purchase additional properties, as well as when companies and trusts acquire residential properties.

Higher Land Transaction Tax (LLT) Rates

It should be noted that higher residential tax rates are not applicable if you are replacing your main residence.

The higher residential tax rates are as follows:

Purchase Price

LLT Rate

Up to £180,000

4%

£180,000 to £250,000

7.5%

£250,001 to £400,000

9%

£400,001 to £750,000

11.5%

£750,001 to £1.5 Million

14%

Over £1.5 Million

16%

Example 2, 

Continuing from example 1, if Mr Alex purchased a residential property price for £2 million on 2nd February 2023 as his second property for buy to let purpose. He will be subject to higher residential tax rates.

The LTT in this case will be computed as under.

4% on the first £180,000

£7,200

7.5% on the next £70,000

£5,250

9% on the next £150,000

£13,500

11.5% on the next £350,000

£40,250

14% on the next £750,000

£105,000

16% on the next £500,000

£80,000

Total LLT

£251,200

LLT Rates for Non-residential Property

These rates are applicable when you buy non-residential property both freehold and leasehold.

For transactions with an effective date on or after 22 December 2020.

Purchase Price

LLT Rate

Up to £225,000

0%

£225,001 to £250,000

1%

£250,001 to £1,000,000

5%

Over £1 Million

6%

Example 3, 

If Mr Alex decides to purchase a non-residential property for £2.8 million on February 2nd, 2023, the Land Transaction Tax (LTT) calculation would be as follows:

0% on the first £225,000

£0

1% on the next £25,000

£250

5% on the next £750,000

£37,500

6% on the next £1,800,000

£108,000

Total LLT

£145,750

Non-Residential Property Rent

If you pay rent on the grant of a lease, the 0% tax band no longer applies to the lease premium. This is called the ‘relevant rent’ rule. The relevant rent threshold changed in February 2021.

For any transaction completed:

  • The relevant rent threshold was £9,000 until 4 February 2021
  • The relevant rent threshold became £13,500 from 4 February 2021 onwards

The rent over the term of a newly granted lease may be liable to LTT. The tax due is calculated on its net present value (NPV).

For transactions with an effective date on or after 22 December 2020

Net present value of Rent

LLT Rate

Up to £225,000

0%

£225,001 to £2,000,000

1%

Over £2 Million

2%

Example 4, 

Mr David purchases a leasehold rental property with an annual payment of £500,000, effective from 1 January 2021 for 10 years. The Net Present Value (NPV) of the rent, discounted at a rate of 12%, amounts to £2,825,112.00.

In this case, LTT is computed as under:

0% on the first £225,000

£0

1% on the next £1,775,000

£17,750

2% on the next 825,111

£16,502.24

Total LTT

£34,252.24

How and When to File a Return and Pay

Buyer must send an LLT return to the Welsh Revenue Authority (WRA) and pay the tax within 30 days of the day after the completion (or other ‘effective date’ of the transaction). They are still required to send a return if they do not owe any LLT unless a specific exception applies.

Land Transaction Tax Return

You can get your solicitor or conveyancer to submit your return and pay the tax online. If you do not use a solicitor or conveyancer, you must file a paper return and pay the tax yourself.

Exceptions to File a Return

Understanding these exceptions is crucial for ensuring compliance with tax regulations."

  • If you buy a freehold property for less than £40,000
  • You inherit a property through a will and no payment is required for the transfer
  • You get the property due to divorce or ending a civil partnership.
  • A new or assigned lease of 7 years or more if both
  •  The premium is less than £40,000
  • The annual rent is less than £1,000
  •  A new or assigned lease of 7 years or more if the amount you pay is less than the residential or non-residential LLT zero rate threshold

Reliefs

Discover How to Slash your Land Transaction Tax (LTT) Bill! With the right legal guidance, you can explore various relief options that significantly reduce your tax burden. Do not miss out on potential savings – let's dive into your options together!

Remember-There is no ‘first-time buyers’ relief in Wales.

Types of reliefs available

  • Multiple Dwelling Relief- This is available in acquiring property made up of more than one dwelling in one transaction or linked transaction
  • Derelict relief- This is available in acquiring property that is no longer habitable as a dwelling
  • Group relief- This is available for transferring properties between companies within the same group where certain conditions are met
  • Relief to Charities- Available where a qualifying charity or a charitable trust buys an interest in land, subject to certain conditions
  • Relief for incorporation of Limited Liability partnerships
  • Alternative property finance reliefs
  • Reconstruction and acquisition reliefs
  • Reliefs for complying with planning obligations
  • Social Housing Relief

Penalties for Late Filing

Failing to submit a mandatory tax return by the due date could result in a £100 fixed penalty. After Six months, further penalties may apply.

Late filing

Penalty

Up to 6 Months

£100

6 to 12 months

Additional £300 or 5% of any unpaid tax, whichever is higher

12 months or more

Additional £300 or 5% of any unpaid tax, whichever is higher

If you fail to file a tax return and you deliberately withhold information that would help assess the amount of tax you owe, your penalty may be:

  • Increased up to £300
  • Amount not exceeding 95% of the tax due

Penalties for Late Payment of LTT

The penalty for late Land Transaction Tax (LTT) payment is 5% of the owed tax amount, with additional penalties for further delays.

Failure to pay (beginning 30 days before penalty date)

Penalty

Within 6 months

Additional 5% of any unpaid tax

Within 12 months

Another 5% of any unpaid tax

You will have to pay daily interest for this period.

LTT Refund Eligibility Criteria

To be eligible for the refund, you need to satisfy the following criteria:

Land Transaction Tax (LTT) Refund Eligibility Criteria
  • If you sold your previous main residence within 3 years of purchasing a new one
  • You've accidentally overpaid LTT due to a mistake or miscalculation
  • You are claiming multiple dwellings relief

Please be aware: If you were not eligible for a refund, you are required to repay the tax along with any accrued interest, and submitting an incorrect amendment may result in additional penalties.

When to Apply for LTT Refund?

After confirming your eligibility to reclaim the overpaid LTT, you can initiate the refund process.

  • You have up to twelve months from the filing date to make amendments to your return and claim a refund
  • After twelve months from the filing date, amendments to your return are not possible. Nevertheless, you can still claim a refund within 4 years of the purchase date

How to Apply for an LTT Refund?

Verify your eligibility for the claim and send a request to the Welsh Revenue Authority (WRA) if you intend to claim a refund. The WRA may inquire about the claim within twelve months from the submission date.

Please ensure that the following documents are in place to claim for LTT refund.

Details of the original transaction

  • 12-digit Unique Transaction Reference Number (UTRN) from your return.
  • Effective date of the transaction
  • Address and postcode of the former main residence.
  • Details about the buyer, including:
  •  Full name
  • Date of birth
  • If there were any other buyers

How Long Does it Take to Process the LTT Refund?

After you submit the form, it might take around 15 to 20 working days to process. If the WRA needs more info, it could take a bit longer.

Conclusion

Land Transaction Tax (LTT) in Wales is a self-assessed tax applicable to various property transactions. The rates differ for residential and non-residential properties, with additional rates for individuals owning multiple residential properties, companies, and trusts. The tax must be paid within 30 days of the completion date, with exceptions for certain transactions and reliefs available to reduce the tax liability.

Late filing incurs penalties, and the deliberate withholding of information may result in increased penalties. Understanding the specific rates, exemptions, and relief options is crucial for individuals and entities involved in property transactions to ensure compliance with Welsh tax regulations.

Need expert advice on Land Transaction Tax (LTT)?

Contact us today for efficient and hassle-free assistance.

Rita Bista
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