The new 'land transaction tax' (LTT) and 'landfill disposal tax' will replace SDLT and landfill tax respectively for transactions in Wales from 1 April 2018. Scotland already has its own equivalents in 'land and buildings transaction tax' (LBTT) and Scottish landfill tax.
The 6% LTT rate for consideration for non-residential transactions in Wales exceeding £1m is higher than the top rate in England of 5% for consideration exceeding £250,000 and the Scottish top rate of 4.5% for consideration above £350,000. However, consideration of between £150,000 and £250,000 will be taxed at 1% for transactions in Wales, rather than 2% in England and 3% in Scotland. The Welsh government says that all businesses buying premises up to the value of £1.1m in Wales will either pay no tax or up to £1,000 less tax than under SDLT.
Whilst, as with SDLT, the top rate of LTT for residential properties is 12% to the extent that the sale price exceeds £1.5m, LTT has a bigger nil rate band, applying to consideration up to £150,000, rather than £125,000 for SDLT and £145,000 in Scotland.
Buyers of residential properties in Wales costing up to £400,000 will pay the same or less tax than under SDLT and the average home buyer will pay nearly £500 less tax than under SDLT, according to the Welsh government.
For people buying a second home or buy to let property, an additional 3% rate will be charged on top of the main residential rate in each band. This is the same as under the current SDLT regime.
LTT is based on and is broadly consistent with SDLT. However, like LBTT, it contains stronger anti avoidance provisions than SDLT. LTT contains a 'general anti avoidance' rule designed to enable the Welsh Revenue Authority to recover tax which has been avoided as a result of an ‘artificial’ tax avoidance arrangement. It also contains a single, clear targeted anti avoidance rule applicable to all reliefs that prohibits a relief from being claimed where the transaction forms part of tax avoidance arrangements.
Property tax expert John Christian of Pinsent Masons, the law firm behind Out-Law.com, said "These further devolved taxes increase compliance burdens for businesses operating throughout the UK."
"It will be important that the Welsh Revenue Authority publishes full guidance that covers the areas that HMRC has addressed in relation to SDLT. One of the real practical issues with LBTT has been that the guidance is not as comprehensive as that for SDLT and that interpretation by Revenue Scotland in some areas has diverged from HMRC," Christian said
"It would cause unnecessary complexity and compliance costs for UK portfolio deals if transactional land taxes were operated and interpreted differently in each of England, Scotland and Wales," he said.
For the first two years of land disposal tax, the standard and lower rates will remain consistent with those for landfill tax. This is designed to provide certainty and stability for businesses and reduce the risk of waste moving across the Wales-England border. However, a new unauthorised disposals rate will be set at £133.45 per ton, which is 150% of the standard rate. This is designed to deter people from disposing of waste illegally.
The Welsh finance secretary also announced a shortlist of four new tax ideas, based on feedback from the public, which will be considered further, These are a vacant land tax, a disposable plastic tax, a tourism tax and a levy to support social care. It is intended that one proposal will be put to the UK government in 2018 to test the Wales Act powers for the Welsh government to put forward proposals for the development of new taxes in areas of devolved responsibility.