This guidance reflects the provisions in Part 3 of the Land Transaction Tax and Anti-avoidance of Devolved Taxes (Wales) Act 2017.
LTTA/3010 Rates of tax
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
can be found on on our rates and bands page.
LTTA/3020 Tax chargeable
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.
LTTA/3030 Tax chargeable – linked transactions
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.
LTTA/3040 Changes to tax bands and tax rates
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
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
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
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.
- 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).
- 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
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
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.
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.
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
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
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
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’)
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.
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.