What is the Land Transaction Tax (LTT)?
LTT needs to be paid when you purchase or lease a building or land in Wales for prices over a certain value. The tax applies to land transactions whose 'effective date' (normally the date of completion) falls on or after 1st April 2018. When purchasing or receiving a residential property, you must usually submit an LTT return to the Welsh Revenue Authority (WRA) even if you do not need to pay any LTT. There are exceptions to this requirement (see below).
What's the difference between LTT and SDLT?
The LTT broadly mirrors the SDLT, which it has replaced. However, there are a few differences:
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there are different rates of tax
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LTT contains certain additional rules relating to higher LTT rates for residential property transactions
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LTT has a potentially stricter anti-avoidance regime - its General Anti-Avoidance Rule (GAAR) applies to 'artificial' tax avoidance, whereas the SDLT equivalent applies only to 'abusive' arrangements (a higher threshold). LTT also introduces a broad Targeted Anti-Avoidance Rule (TAAR) which is applicable to all reliefs that may be part of a tax avoidance arrangement (ie an arrangement for purchasing property that is entered into largely for the purpose of avoiding taxation)
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under LTT the rent element of newly granted residential leases will usually be exempt from tax - it is chargeable under SDLT
What is the Welsh Revenue Authority?
The WRA is responsible for collecting and managing the LTT and other Welsh devolved taxes. Although operationally independent, it is accountable to Welsh Ministers and to the National Assembly for Wales.
What are the main residential LTT rates?
On 10 October 2022, the LTT threshold became £225,000 for residential properties. Property that is purchased for less than this price (or which is worth less than this amount if it is being transferred in exchange for payment, for example because you are taking on a mortgage) is not liable for LTT. The current rates of LTT that are charged on purchases are as follows:
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for any portion of the price/value up to £225,000 = 0%
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for any portion of the price/value between £225,001and £400,000 = 6%
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for any portion of the price/value between £400,001 and £750,000 = 7.5%
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for any portion of the price/value between £750,001 and £1.5 million = 10%
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for any portion of the price/value above £1.5 million = 12%
These rates apply both to sales and transfers of freehold property and also to the purchase price of the lease (called the lease premium) in respect of leasehold properties.
Example: Frank buys a house for £450,000. He pays no LTT on the first £225,000. He pays 6% of the next £175,000 = £10,500. He pays 7.5% on the remaining £50,000 = £3,750. So in total Frank must pay £10,500 + £3,750 = £14,250.
What are the higher residential rates?
A higher rate of LTT is normally payable in respect of purchases of additional residential properties (ie property that you purchase while you already own another property) This is usually 4% more than the main residential rates and is paid instead of (ie rather than in addition to) the standard rates. The current rates (as of 5 April 2023) are as follows:
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for any portion of the price/value up to £180,000 = 4%
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for any portion of the price/value between £180,001 and £250,000 = 7.5%
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for any portion of the price/value between £250,001 and £400,000 = 9%
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for any portion of the price/value between£400,001 and £750,000 = 11.5%
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for any portion of the price/value between £750,001 and £1.5 million = 14%
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for any portion of the price/value above £1.5 million = 16%
In some circumstances, you may not have to pay the higher rate. For instance, if your new property is worth less than £40,000 or if it is of mixed-use (ie both commercial and residential).
If you are replacing your main residence with the residential property that you are purchasing, but you still own your previous main residence, you will have to pay the higher rate. However, you can apply for a refund if you sell your former main residence within 3 years of the purchase.
For more information about the higher residential rates, see the Welsh Government’s guidance.
Reliefs and exemptions for LTT on residential property
In certain situations, you may not have to submit an LTT return or pay LTT. Such circumstances include:
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you receive property under a will and you do not give anything in exchange for it
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a property is transferred to you as the result of a divorce or dissolution of a civil partnership
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you purchase a freehold property for less than £40,000
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you purchase a new or assigned lease for a price under certain thresholds, which depend on the length of the lease
For more information on these exemptions, read the Welsh Government’s guidance on LTT.
What are the non-residential rates?
As of 5 April 2023, the LTT threshold is £225,000 for non-residential land and properties. Property which is purchased for less than this price (or which is worth less than this amount if it is being transferred in exchange for payment, for example, because you are taking on a mortgage) is not liable for LTT. The LTT rates for non-residential freehold property are:
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for any portion of the price/value up to £225,000 = 0%
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for any portion of the price/value between £225,001 and £250,000 = 1%
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for any portion of the price/value between £250,001 and £1 million = 5%
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for any portion of the price/value above £1 million = 6%
These rates usually also apply to leasehold non-residential property, but the calculations can be more complex. You can use the WRA LTT Calculator to work out how much LTT must be paid for a particular transaction.
What are the non-residential property rent rates?
If you pay rent of more than £13,500 during a year of a lease that you own, the usual 0% tax band for non-residential rates (set out above) may not apply to the purchase price that you originally paid for the lease (ie the ‘lease premium’). In this situation, you would pay the 1% LTT rate on all of the purchase price (ie the lease premium) up to £250,000.
You may also have to pay LTT on the rent you pay on a lease during its term, if the lease was newly granted (ie created) when you purchased it. The rates for this particular type of LTT depend on the lease’s net present value (NPV) (ie a calculation based on the total rent due over the life of the lease).
As of 5 April 2023, the LTT rates for rent paid on a non-residential lease are:
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any proportion of the rent up to £225,000 per year = 0%
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any portion of the rent between £225,001 and £2 million per year = 1%
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any portion of the rent above £2 million per year = 2%
For more information on LTT for non-residential leasehold properties, including worked examples, see the Welsh Government’s guidance.
Do other taxes need to be paid when property is sold?
Some other taxes may need to be paid when a property is sold. For example:
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Capital Gains Tax (CGT) - this tax is charged on profits made when somebody sells an asset that has increased in value. It may be applicable if, for example, you sell a second home. For more information, read Capital gains tax
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Annual Tax on Enveloped Dwellings (ATED) - often, if a company sells residential property in the UK that’s worth more than £500,000, they must pay ATED and complete an ATED return. For more information, read the government’s guidance on ATED
