In the draft budget released on 21 December 2020, the Welsh government announced the higher residential rates of Land Transaction Tax will increase by 1% across all bands. This could affect buy to let investors and people looking to buy a second home or holiday home in Wales.
These new rates are applicable to any property transactions completed after 22 December 2020. Any transactions completed before 22 December (or in most cases where contracts have been exchanged but the transaction has not yet completed), the previous rates will apply.
How Does Land Transaction Work?
In Wales, tax on property is devolved, which means that it is under the control of the Welsh government. Unlike in England, where people pay Stamp Duty, anyone purchasing property in Wales pays Land Transaction Tax.
There are two rates of Land Transaction Tax to be aware of. People who buy a property that is to be their only residence will pay the ‘main rate’ of Land Transaction Tax, whereas someone purchasing a second home, a buy to let property or a holiday home worth over £40,000 will pay the ‘higher rate’ of Land Transaction Tax.
The higher rate of Transaction Tax does not apply if the property is worth less than £40,000.
Following the recent changes to legislation, people buying a property that falls under the higher rate band will now pay 4% more on top of basic Land Transaction Tax rates. The higher rates are now as follows:
- £0 to £180,000 – 4%
- £180,001 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%
Does the Land Transaction Tax Holiday Affect Higher Rates?
No, it does not.
Until 31 March 2021, Land Transaction Tax is not payable on main residences costing less than £250,000. This Land Transaction Tax ‘holiday’ was introduced by the Welsh government in response to the COVID-19 pandemic to encourage people to continue buying and selling during such uncertain times. A similar approach has been taken in England, Northern Ireland and Scotland.
Despite the introduction of the holiday for main residences, Land Transaction Tax is still payable on properties which attract the higher residential rates. This means that, if you are buying a second home, or you are buy to let investor, you will still be required to pay the increased rate across all bands.
Are There Any Exemptions for the Changes to Land Transaction Tax?
The higher rates may not apply to your property transaction for a number of reasons, including:
- The property is being used as your main home and you have already sold your previous main home or are selling it on the same day
- The property in question is worth less than £40,000
- The property is a mixture of residential and non-residential space
- The property is movable (such as a caravan or mobile home)
- The property is freehold with a lease which has more than 21 years left to run, held by someone unconnected to you
If you have sold your previous main home within three years of purchasing your new main home, and have been charged higher rates of Land Transaction, then you will usually be able to apply for a refund.
You may also qualify for a relief that reduces the amount of Land Transaction Tax you pay. For example, if you buy more than one property, you may be eligible to claim multiple dwellings relief. If you buy a property that consists of more than 2 dwellings, you may be able to apply for the subsidiary dwelling exception.
For more information, visit the Welsh government website’s guide to Land Transaction Tax.
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