Guidance

Calculation of Land Transaction Tax payable: technical guidance

This guidance reflects the provisions in Part 3 of the Land Transaction Tax and Anti-avoidance of Devolved Taxes (Wales) Act 2017.

Part of:
Organisation:
Welsh Revenue Authority
First published:
9 May 2018
Last updated:

Contents

LTTA/3010 Rates of tax

(section 24)

The tax rates for LTT for land transactions with an effective date of transaction (or deemed effective date of transaction) of 1 April 2018 onwards for:

  • residential property transactions
  • higher rates residential property transactions
  • non-residential transactions
  • rents

can be found on on our rates and bands page.

LTTA/3020 Tax chargeable

(section 27)

For transactions that are not linked to other land transactions subject to LTT the liability is established in the following manner:

  • Step 1 – for each tax band applicable multiply so much of the chargeable consideration that falls within that band by the percentage rate applicable to that band
  • Step 2 – calculate the sum of the various amounts established under step 1. The total is the amount of tax chargeable for the land transaction

A calculator is provided by the WRA that a taxpayer can use to calculate their liability. Please note that the calculator will establish the liability based on the information given. Where a number of rules require different methods of calculation, the calculator cannot be used.

Example 1

Ms A buys her first residential property. It costs £120,000. The tax liability is:

£120,000 x 0% = £0

This is based on the relevant tax bands being:

£0 - £225,000

0%

Example 2

Mr B buys his first residential property. It costs £350,000. The tax liability is:

  • £225,000 x 0% = £0
  • £125,000 x 6% = £7,500
  • £350,000 = £7,500

This is based on the relevant tax bands being:

£0 - £225,000 0%
£225,001 - £400,000 6%

Example 3

Ms C buys her first residential property. It costs £1,700,000. The tax liability is:

  • £225,000 x 0% = 0
  • £175,000 x 6% = £10,500
  • £350,000 x 7.5% = £26,250
  • £750,000 x 10% = £75,000
  • £200,000 x 12% = £24,000
  • £1,700,000 = £135,750

This is based on the tax bands being:

£0 - £225,000 0%
£225,001 - £400,000 6%
£400,001 - £750,000 7.5%
£750,001 - £1,500,000 10%
£1,500,001 onwards 12%

Example 4

Ms E owns her main residence and has a small buy-to-let portfolio. She buys a residential property to add to that portfolio costing £130,000. The transaction must be assessed using the higher rates residential property rates. The tax liability is:

£130,000 x 4% = £5,200

This is based on the relevant tax bands being:

£0 - £180,000 4%

Example 5

Mr F owns his main residence and has a small buy-to-let portfolio. He buys a residential property to add to that portfolio costing £330,000. The transaction must be assessed using the higher rates residential property rates. The tax liability is:

  • £180,000 x 4% = £7,200
  • £70,000 x 7.5%= £5,250
  • £80,000 x 9% = £7,200
  • £330,000 = £19,650

This is based on the relevant tax bands being:

£0 - £180,000 4%
£180,001 - £250,000 7.5%
£250,001 - £400,000 9%

Example 6

Mr D owns his main residence and has a small buy-to-let portfolio. He buys a residential property costing £36,500. As this transaction is not notifiable as the consideration is below £40,000 he does not need to make a return and therefore there is no tax to pay.

Example 7

Y Ltd acquires a freehold non-residential property costing £300,000. The liability is:

  • £225,000 x 0% = £0
  • £25,000 x 1% = £250
  • £50,000 x 5% = £2,750
  • £330,000 = £3,500

This is based on the relevant tax bands being:

£0 - £225,000 0%
£225,001 - £250,000 1%
£250,001 - £1,000,000 5%

Example 8

W Ltd acquires a lease by assignment from its previous owner for a non-residential property. A premium of £3,500,000 is paid. The liability is:

  • £225,000 x 0% =£0
  • £25,000 x 1% = £250
  • £750,000 x 5% = £37,500
  • £2,500,000 x 6% = £150,000
  • £187,750

This is based on the relevant tax bands being:

Up to £225,000 x 0% 0%
£225,001 - £250,000 1%
£250,001 - £1,000,000 5%
£1,000,001 onward 6%

LTTA/3030 Tax chargeable – linked transactions

(section 28)

Where the transaction is one of a number of linked transactions then the method for calculating the amount of tax is:

  • Step 1 – calculate the tax chargeable on the total consideration given for all the linked transactions. This means treating the linked transactions as though they were a single transaction
  • Step 2 – establish the fraction that relates to the current transaction. This is done by dividing the chargeable consideration for that transaction by the total consideration for all the linked transactions
  • Step 3 – multiply the tax chargeable that was established under step 1 by the fraction established at step 2.

The ‘total consideration’ is the total of all the consideration paid for all of the linked transactions. 

It is possible that a return or further return will be needed in relation to the earlier linked transactions as the calculation is applied to each linked transaction (including those that have already been subject to tax), each time there is a further linked transaction.

Example 2 (below) explains how to calculate linked transactions where there has been a change in rates and bands between the transactions. The example uses the non-residential rates, however the same methodology should be followed for all other sets of rates and bands.

Example 1

A Ltd buys a non-residential property costing £500,000 on 1 June 2018. It is followed by 2 other linked transactions, both of non-residential property. The second transaction has an effective date of 1 August 2020 with consideration given of £350,000, and the third has an effective date of 1 November 2020 with consideration given of £1,100,000. For the purposes of this example there are no changes to the tax rates and bands during this period. There have not been any non-residential rate changes during this period.

Transaction 1

The first transaction results in a liability to tax of £13,500. A return for this transaction, and payment of the tax, must be made by 1 July 2018.

Transaction 2

As the first and second transactions are linked, the linked transaction calculation rules (as illustrated below) are applied to both transactions. The total consideration is £850,000 (transaction 1 - £500,000 + transaction 2 - £350,000) and the tax liability based on the total consideration is £31,000 (step 1). The fraction for the second transaction is 7/17 (350,000/850,000) and the fraction for the first transaction is 10/17 (500,000/850,000) (step 2). The tax due for the second transaction is therefore £12,764.71 (£31,000 x 7/17). The tax due for the first transaction is £18,235.29 (step 3). A Ltd must send in a return, and pay the tax (£12,764.70), for the second transaction by 31 August 2020. A Ltd must also make a further return for the first transaction, and pay the tax, less any tax already paid, by 31 August 2020. The tax due on that transaction is now £18,235.29, less £13,500 that has already been paid, so only £4,735.29 needs to be paid on the further return in respect of the first transaction.

Transaction 3

The third transaction is linked to transactions 1 and 2, and so the linked transaction calculation rules (as illustrated below) are applied to each of the transactions again. The total consideration for all 3 transactions is £1,950,000 (transaction 1 - £500,000 + transaction 2 - £350,000 + transaction 3 - £1,100,000), and the tax liability based on the total consideration is £95,500 (step 1). The fraction for the third transaction is 22/39 (1,100,000/1,950,000), (500,000/1,950,000) and 10/39 for the second transaction (500,000/1,950,000), and 7/39 for the first transaction (350,000/1,950,000) (step 2). The tax due for the third transaction is £53,871.79 (£95,500 x 22/39), for the second transaction is £24,487.17 (£95,500 x 10/39), and for the first transaction is £17,141.02 (£95,500 x 7/39).

A Ltd must send in a return, and pay the tax, for the third transaction by 1 December 2020. A Ltd must also make 2 further returns for the first and second transactions. In relation to the first transaction A Ltd must make a return and pay the tax, by 1 December 2020. The tax due on that transaction is now £24,487.18, however, as £18,235.29 (£13,500 + £4,735.29) has already been paid only £6,251.89 needs to be paid. A Ltd must also make a return for the second transaction. A Ltd must make a return and pay the tax, by 1 December 2020. The tax due on that transaction is now £17,141.03, however, as £12,764.71 has already been paid only £4,376.32 needs to be paid.

Example 2

Transaction Date Consideration
Transaction 1 01/11/2020 £100,000
Transaction 2 01/12/2020 £500,000
Transaction 3 01/01/2021 £700,000

Transaction 1

The first transaction does not result in a tax liability. A return is still required for this transaction. It must be made by 1 December 2020.

Transaction 2

As the first and second transactions are linked, the linked transaction calculation rules (as illustrated above) are applied to both transactions.

The total consideration is £600,000 (transaction 1 - £100,000 + transaction 2 - £500,000) and the tax liability based on the total consideration is £18,500 (step 1).

The fraction for the second transaction is 5/6 (500,000/600,000) and the fraction for the first transaction is 1/6 (100,000/600,000) (step 2). The tax due for the second transaction is therefore £15,416.67 (£18,500 x 5/6). The tax due for the first transaction is £3,083.33 (step 3). A Ltd must send in a return, and pay the tax (£15,416.67), for the second transaction by 31 December 2020. A Ltd must also make a further return for the first transaction, and pay the tax of £3083.33 by 31 December 2021.

Transaction 3

The third transaction is linked to transactions 1 and 2, and so the linked transaction calculation rules (as illustrated below) are applied to each of the transactions again. However, the rates and bands have changed in between transaction 2 and transaction 3.

The total consideration for all 3 transactions is £1,300,000 (transaction 1 - £100,000 + transaction 2 - £500,000 + transaction 3 - £700,000), and the tax liability based on the total consideration at “new rates and bands” is £55,750 (step 1).

The fraction for the third transaction is 7/13 (700,000/1,300,000) (step 2). The tax due for the third transaction is £30,019.23 (£55,750 x 7/13). (step 3)

To calculate any additional tax required for transactions 1 & 2 B Ltd will need to calculate the total consideration (£1,300,000) using the “old rates and bands”. This is £56,500. (step 1)

The fraction for the second transaction is 5/13 (500,000/1,300,000) (step 2). The tax due for the second transaction is £21,730.77 (£56,500 x 5/13). (step 3)

The fraction for the first transaction is 1/13 (100,000/1,300,000) (step 2). The tax due for the first transaction is £4,346.15 (£56,500 x 1/13). (step 3)

B Ltd must send in a return, and pay the tax, for the third transaction by 31 January 2021. A Ltd must also make 2 further returns for the first and second transactions. In relation to the first transaction A Ltd must make a return and pay the tax, by 31 January 2021. The tax due on that transaction is now £4,346.15, however, as £3,083.33 has already been paid only £1,262.82 needs to be paid. B Ltd must also make a further return for the second transaction. The tax due on that transaction is now £21,730.77, however, as £15,416.67 has already been paid only £6,314.10 needs to be paid.

LTTA/3040 Changes to tax bands and tax rates

(section 24)

Tax rates and bands are in force on and after 1 April 2018 for all transactions to which LTT applies. Subsequent changes may be made by the Welsh Ministers making regulations containing the changes. Those regulations will have immediate effect from when they are laid in the National Assembly for Wales. The rates and bands, although having immediate effect, are provisional rates and bands until the National Assembly for Wales has approved them (and that approval must occur within 28 (Assembly) days of the regulations being laid).

LTTA/3041 Transitional provisions for October 2022 main residential rates change

The Land Transaction Tax (Tax Bands and Tax Rates) (Wales) (Amendment) Regulations 2022 amended the rates for purchases subject to the main residential tax rates in Wales. They came into force on 10 October 2022.

1. Application of new rates

Regulation 3

Main residential rates transactions with an effective date on or after 10 October 2022 shall be subject to the main residential rates in table 1 of the Land Transaction Tax (Tax Bands and Tax Rates) (Wales) (Amendment) Regulations 2022 (‘the 2022 Regulations’).

See the rates and bands page for the current and previous rates of LTT.

2. Transitional provisions

Regulation 4

The 2022 Regulations will not have effect (and the rates before 10 October 2022 will apply) on any transaction where:

  • exchange of contracts has taken place and the transaction is completed before 10 October 2022
  • exchange of contracts has taken place before 10 October 2022 but the transaction is not completed until on or after 10 October 2022 and an election is made to tax the transaction at the rates effective before 10 October 2022 (as explained below)

2.1 Election to apply transitional provisions

Regulation 6

Where under Regulation 4 the main residential rates before 10 October 2022 may apply, it’s possible under Regulation 6 to elect for these rates to apply. Where no election is made, the main residential rates effective from 10 October 2022 will apply.

The election may be made in 2 circumstances.

  1. Where contracts were exchanged before 10 October 2022 and the contract was substantially performed before that date (refer to LTTA/2150 for further information on substantial performance).
  2. Where contracts were exchanged before 10 October 2022, and the contract is completed on or after that date. This election may be made provided there is no event on or after 10 October 2022, of the kind listed at Regulation 5, which results in the effect of the contract on completion being different from the effect of the contract when first entered into.

This election under Regulation 6 must be made:

  • in a Land Transaction Tax (LTT) return, or
  • in an amendment to such a return

An election may only be made where it won’t result in more tax being charged as a result of using the rates before 10 October 2022.

Further guidance on the completion of the LTT return and the calculation of LTT is available in the Land Transaction Tax return guidance.

2.2 Exceptions to transitional provisions

Regulation 5

Transactions where contracts were exchanged before 10 October 2022 but completed on or after that date, will be subject to the main residential rates in force from 10 October 2022 if any of the following apply:

  • there's any variation of the contract, or assignment of rights under the contract, on or after 10 October 2022
  • the transaction is effected in consequence of the exercise on or after that date of any option, right of pre-emption or similar right
  • on or after that date there’s an assignment, subsale or other transaction relating to the whole or part of the subject-matter of the contract as a result of which a person other than the purchaser under the contract becomes entitled to call for a transfer

For linked transactions

Where a transaction subject to the main residential rates is linked to another transaction subject to the previous rates of main residential rates, follow example 2 in LTTA/3030 to calculate the amount of tax payable.

LTTA/3050 Changes to tax bands and tax rates – regulations ceasing to have effect

(section 26)

In the event that the regulations cease to have effect because the National Assembly for Wales did not vote on the regulations, or voted to reject them, the regulations are to be treated as ‘rejected regulations’. The rejected regulations will have been in force for a period known as the ‘interim period’. The interim period is the period from the date that the rejected regulations came into force and ending on the date the regulations cease to have effect.

If the effective date of a transaction falls within the interim period the rates specified by the rejected regulations apply to the transaction. There are 3 exclusions from that rule. If one of the exclusions applies, the rates and bands that apply are those that would have been in force had the rejected regulations not been made.

Exclusion 1

If the buyer is required to make a return that has a filing date that is within the interim period but fails to make that return before the end date of the interim period.

Exclusion 2

If the buyer is required to make a first return for a chargeable transaction under one of the following situations:

  • a duty to make a return where a contingency ceases or consideration is ascertained
  • a return as a result of a later linked transaction
  • a return as a result of a lease continuing after a fixed term or for an indefinite term
  • a return required as a result of a lease reconsideration date

Exclusion 3

If the buyer makes a claim to repayment under S63A TCMA, that claim is treated as an amendment to the return, and a further return is required due to:

  • one of the reasons in exclusion 2
  • a further return required as a result of a relief being withdrawn
  • a return for a higher rates transaction

LTTA/3060 Calculation of tax – relief provisions affecting method of calculation

(section 29)

The following reliefs affect the method of calculation of tax due:

  • relief for acquisitions involving multiple dwellings
  • relief for transactions entered into by persons exercising collective rights
  • acquisition relief

LTTA/3070 Reliefs

(section 30)

Reliefs available are either full reliefs resulting in all tax payable on the transaction being relieved, or partial relief where some of the consideration given is not relieved including some where the method of calculation is varied. In some cases, such as charities relief, the relief can be either a full relief or a partial relief. It is important when claiming relief that the taxpayer selects the correct relief, and if that relief can be full or partial that the correct option is selected.

All reliefs, with the exception of the visiting forces and international military headquarters relief, must be claimed in the first return made in relation to that transaction or an amendment to that return. Failure to comply with the time limits for making an amendment to the first return will result in the taxpayer not being able to make a claim to apply the relief. 

In relation to visiting forces and international military headquarters relief, the claim may be made in the return for that land transaction, or an amendment to that return, or by making a claim for repayment of overpaid tax. The time limit for making such a claim does apply to the making of that claim for repayment.

The reliefs are contained in schedules 9 to 22 of the LTTA and provide for:

  • Sale and leaseback relief
  • Alternative property finance relief
  • Relief for alternative finance bonds
  • Relief for incorporation of limited liability partnership
  • Relief for Acquisitions involving multiple dwellings
  • Relief for certain acquisitions of dwellings
  • Relief for certain transactions relating to social housing;
  • Group relief
  • Reconstruction and acquisition reliefs
  • Charities relief
  • Open-ended investment company reliefs
  • Relief for acquisitions by public bodies and health bodies
  • Compulsory purchase relief and planning obligation relief
  • Miscellaneous reliefs

LTTA/3080 Reliefs: anti-avoidance – the reliefs targeted anti-avoidance rule (‘the reliefs TAAR’)

(section 31)

Any claim to a relief is subject to a targeted anti-avoidance rule (‘TAAR’). The TAAR operates so that a taxpayer cannot claim relief where the transaction is, or is part of, a ‘tax avoidance arrangement’. A tax avoidance arrangement is defined as an arrangement where the obtaining of a ‘tax advantage’ by any person was the main or one of the main purposes of the arrangement, and the arrangement lacks a genuine economic or commercial main purpose (other than the obtaining of a tax advantage).

‘Arrangements’ has been defined so that it includes any transaction, scheme, agreement, understanding, promise or any series of such arrangements.

A ‘tax advantage’ is defined widely to mean:

  • the claiming of a relief or an increased relief from tax
  • the repayment of or an increased repayment of tax
  • the avoidance or the reduction of a charge to tax, and
  • the deferral of a payment of tax or the advancement of a repayment of tax

The TAAR is intended to apply to cases where relief is claimed in circumstances where it is not the intention of the National Assembly for Wales that relief should be given. Therefore, in situations where a transaction is structured in a manner that complies with generally prevailing practice and the taxpayer claims relief as intended then that claim will not fall within the scope of this anti-avoidance rule. However, where additional arrangements or steps are entered into solely to create a situation in which the conditions for claim to relief are met then the claim will fall within these provisions and should not be made.

Whether an arrangement has a genuine economic or commercial main purpose will, ultimately, depend on the facts of the transaction. For example, the TAAR should not prohibit a claim to relief by a charity where it acquires a property for charitable purposes (for example housing people who meet the charity’s charitable purposes) as, whilst there may not be a commercial reason to the acquisition, there is an economic purpose as the charity has exchanged cash for a physical asset – the property – with which to further its charitable purposes.

‘Tax’ for the purposes this section is wider than just LTT, and includes some taxes imposed at a UK level as well (specifically income tax, corporation tax, capital gains tax, stamp duty land tax, stamp duty reserve tax or stamp duty). This will ensure that where a Welsh land transaction is entered into (and for which relief would otherwise be allowable) relief from LTT cannot be claimed if the land transaction forms part of arrangements to avoid that other tax, or taxes. Prohibiting the claim for relief from LTT in these circumstances is without prejudice to any action HMRC might take to recover the non-devolved tax that has been avoided.

Example 1

Sale and leaseback relief and group relief: TAAR does not apply.

Sale and leaseback relief provides for no LTT to be charged on any premium payable or on the rent payable under the lease granted to the seller by the buyer. The purpose of the relief is so that no LTT charge arises on what is essentially a financing transaction – the seller obtains a lump sum and pays ’interest’ in the form of rent to the buyer.

However, once the lease expires, the buyer will have acquired an unencumbered freehold or leasehold interest and so it is appropriate for LTT to remain due on the purchase price paid to the seller.

One of the requirements of sale and leaseback relief is that the seller is also the person who is granted the lease (see paragraph 2(b) of Schedule 9 LTTA).

A Ltd wishes to enter into a sale and leaseback arrangement with an unconnected third party (Y Ltd) but wants the lease to be granted to A Ltd’s subsidiary (B Ltd). The facts are such that there are sound commercial reasons for B Ltd to own the lease rather than A Ltd.

If A Ltd were to sell the property to Y Ltd and require Y Ltd to grant the lease to B Ltd the conditions for sale and leaseback relief would not have been met as the lease was not granted to the seller in the sale leg of the arrangements.

A Ltd could either:

  • first assign or transfer the property to B Ltd; B Ltd would issue a debenture to A Ltd, as the consideration for that transfer; B Ltd would then sell the property to Y Ltd; Y Ltd would grant the lease back to B Ltd; and in due course B Ltd satisfies the debenture either out of its own funds or from the cash paid by Y Ltd to B Ltd, or 
  • enter into the sale and leaseback in the normal way so that the lease is granted by Y Ltd to A Ltd; and then A Ltd immediately transfers or assigns the lease to B Ltd

For either arrangements the consideration will be based on the market value of the property transferred from A Ltd to B Ltd as the transaction is between connected parties.

In first option B Ltd will claim group relief so that no LTT is paid on the assignment or transfer of the property to it from A Ltd and B Ltd will claim sale and leaseback relief (so that Y Ltd pays LTT on the purchase price but B Ltd does not pay LTT on the premium or rent due under the leaseback).

In the second option A Ltd will claim sale and leaseback relief as the conditions are satisfied and B Ltd will claim group relief on the assignment so that no LTT would be payable on any consideration B Ltd paid (or was treated as paying by section 22 LTTA) to A Ltd. Y Ltd will still pay on the consideration that it gives for the sale leg of the sale and leaseback arrangement.

Looking at the arrangements as a whole, the property was owned by A Ltd, but the leaseback from Y Ltd is to B Ltd. However, whilst those transactions would have resulted in the claim to relief not being possible, and that arrangements have been made to ensure that relief can be obtained, those arrangements do not amount to tax avoidance arrangements. This is because the arrangements have genuine economic or commercial substance.

Group relief, within limits, is intended to prevent a charge to LTT arising where an asset remains within a group. Therefore, the transfer of the property before the sale and leaseback, or assignment of the lease following the leaseback, would be consistent with the principles and policy behind the legislation – the asset remains in the group, and tax is paid on the asset leaving the group. In a sale and leaseback scenario an amount of LTT should be payable by the buyer (Y Ltd) but the leaseback element is relieved from charge. Likewise, group relief can be claimed when the relevant conditions are met on a transfer between group companies. In this case the single tax liability arising on the buyer (Y Ltd) remains and neither A Ltd nor B Ltd have gained a tax advantage that is not intended to be available to them.

On the basis of the facts, there is no indication that any of the steps are wholly or mainly to gain a tax advantage. The sequence of transactions are part of the normal financing arrangements and the group needs to have the asset held by B Ltd rather than A Ltd is, in this case, for genuine commercial reasons. The group has combined 2 reliefs in a legitimate manner that results in the tax charges intended.

Example 2

Group relief: TAAR does not apply

Examples of arrangements or transactions that will, on the bare facts set out not prohibit a claim to relief. The examples also assume that the transactions described do not form part of any larger scheme or arrangement which might have tax consequences:

  • the transfer of a property to a group company having in mind the possibility that shares in that company might be sold more than 3 years after the date of transfer (a clawback of the relief may arise in the event of the share sale)
  • the transfer of a property to a group company prior to the sale of shares in the transferor company, in order that the property remain in the group and does not pass to the purchaser of the shares

LTTA/3090 The TAAR and other anti-avoidance rules

In addition to the TAAR, the devolved taxes legislation contains other anti-avoidance provisions, the most significant of which being the General Anti-Avoidance Rule (‘GAAR’).

The GAAR is designed to counteract tax advantages which arise as a result of the artificial tax avoidance arrangements that have been used by the taxpayer.

The GAAR is independent of the other anti-avoidance rules, and it may be used to challenge an artificial arrangement which was itself contrived to exploit a defect, or perceived defect, in the other anti-avoidance rules.

Whilst multiple arguments based on other areas of the devolved tax legislation may be possible, the WRA can choose to use only a GAAR challenge. A taxpayer cannot object to the use of the GAAR simply because other means available to the WRA to challenge the artificial arrangement have not been used.

Full guidance on the GAAR is available at TCMA/8000.

First published

9 May 2018

Last updated

Organisation

Welsh Revenue Authority

Part of