Land Transaction Tax (LTT) will take effect from 1st April 2018 and, alongside Landfill Disposals Tax, will be the first new tax in Wales for 800 years. LTT will replace Stamp Duty Land Tax (SDLT) for all transactions involving the acquisition of land in Wales (including the grant of a lease).
The main rates of LTT were published in October last year with the headline point being that more LTT will be payable compared to SDLT for higher value transactions. For example, on the acquisition of commercial properties, LTT will be charged at 6% on any purchase price above £1 million compared to 5% for SDLT. In relation to residential properties, more LTT is payable compared to SDLT when the purchase price exceeds £400,000.
A major question that was outstanding has been the treatment of transactions that exchanged before the end of March and then complete on or after 1st April 2018; would the transactions be liable to SDLT or LTT? Regulations introducing transitional rules received approval in the Welsh Assembly on 31st January. The transitional rules mean that all transactions that complete on or after 1st April will be subject to LTT. The one exception is where contracts were exchanged on or before 17th December 2014 (the date that the Wales Act 2014 removing the SDLT charges received Royal Assent), provided any such contract has not been varied or otherwise amended so that the purchaser would be anyone other than the original contracted party.
The LTT legislation does not include any anti-forestalling legislation and therefore there is nothing from a tax point of view to prevent clients bringing forward their higher value acquisitions to ensure that the purchase completes on or before 31st March 2018. We are seeing an increasing number of transactions where the purchaser wishes to complete on or before 31st March and this gives the seller an opportunity to negotiate an adjustment to the purchase price to reflect a sharing of the stamp duty saving. For example, on a purchase of a commercial property for £3 million, completion on or before 31st March 2018 will save the purchaser £19,000 in stamp duty.
The “cut off” point where LTT becomes more expensive compared to SDLT for non-residential property is a purchase of £1.1 million. Consequently, if a client is looking to purchase a commercial property for less than £1.1 million they will want to ensure that completion takes place on or after 1st April 2018 in order to pay less LTT compared to SDLT. Exchange of contracts can still take place before 1st April, the purchaser should ensure that the contract is not substantially performed by the purchaser going into occupation of the property until after 31 March 2018. Substantial performance triggers the payment of stamp duty before actual completion.