Land Transaction Tax: The Welsh property tax

What is Land Transaction Tax (LTT)?

Land Transaction Tax (LTT) is a tax that's paid in Wales when you buy or lease a building or piece of land over a certain price.

It's the Welsh equivalent of England's Stamp Duty Land Tax. But, while there are many similarities, there are a number of differences between the two taxes too. Most importantly, Land Transaction Tax rate bands are different to the Stamp Duty bands in England.

Who has to pay Land Transaction Tax?

Land Transaction Tax is usually paid by the person buying the property (or land). The tax is due whether you buy the property outright, or use a mortgage or loan to make the purchase.

You'll have to pay the tax if you:

• buy a freehold property in Wales for over £180,000

• buy a new or existing leasehold in Wales for over £180,000

In some cases a developer might offer to contribute the costs of any Land Transaction Tax as an incentive to purchase one of their homes.

You don't have to pay or file a land transaction tax return if:

• No money is involved in the transaction

• You're inheriting the property

• You're given ownership of the property in a divorce or the dissolution of a civil partnership

• The property or land costs less than £40,000

• The lease on the property or land is for less than 7 years

How much is Land Transaction Tax (LTT)?

The amount you'll have to pay in Land Transaction Tax is based on the price of the property you're buying. Normal LTT rates for residential property in Wales, are as follows:

• Up to £180,000 - 0%

• The portion over £180,000 to £250,000 - 3.5%

• The portion over £250,000 to £400,000 - 5%

• The portion over £400,000 to £750,000 - 7.5%

• The portion over £750,000 to £1.5 million - 10%

• The portion over £1.5 million - 12%

This means, if you're buying a home for £260,000, you'd pay:

• 0% tax on the first £180,000

• 3.5% on the next £70,000

• And 5% on the final £10,000

In total the LTT for a £260,000 property would be: £2950.

Note: Unlike Stamp Duty, first time buyers in Wales have to pay the same amount of LTT rates as home movers.

Temporary Land Transaction Tax reduction

The Welsh Government recently announced a temporary increase in the 'nil rate' for Land Transaction Tax (LTT), similar to England's Stamp Duty Land Tax holiday. This is available until 30 June 2020. This means you won't have to pay any LTT on properties costing less than £250,000. On July 1st 2021, the rates will return to the normal level. To take advantage of the temporary tax relief, you'll need to have completed your house purchase by 1st July 2021.

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Land Transaction Tax on second homes

There are slightly different LTT rates if you already own a property and are buying another without selling first, such as: a second home, or a buy-to-let. For these types of purchases, you'll need to add an extra 4% onto each of the standard rate bands.

If you're buying a new 'main residence', and haven't yet sold your current house, you can get a refund on the extra LTT you'll have to pay once you sell your old home.

When do you pay Land Transaction Tax?

Land Transaction Tax has to be paid within 30 days of the official completion of the property sale. This is the day you (or your mortgage lender) transfers the money to the seller, and you get the keys.

How do you pay Land Transaction Tax?

Usually your solicitor or conveyancer will file your Land Transaction Tax return and pay the amount due for you. They'll add the amount paid in tax to their final bill, and you'll pay them in the agreed way when you settle your legal fees.

Learn more about the conveyancing process here.

If you're doing your own conveyancing, you'll have to file the return yourself, and then pay the Welsh Revenue Authority (WRA) directly. It's incredibly important that you avoid mistakes on your return. The financial penalties for errors that lead to incorrectly paid tax can be significant.

Once you've submitted your return you'll need to pay LTT to the Welsh Revenue Authority (WRA) bank account. You'll need your:

• 12 digit Unique Transaction Reference Number (UTRN) from your online account

• Or a payment reference (postcode of property / surname of buyer)

Using your reference, you can pay directly into the WRA bank account using CHAPs or Bacs.

What happens if you don't pay LTT on time, or pay the wrong amount?

If you don't pay the Land Transaction Tax you owe within 30 days of your sale completing, you'll have to pay interest on the amount due, and you'll also face additional financial penalties.

The usual penalties for late filing and payment include:

• £100 fixed penalty if you fail to send the tax due on or before your filing due date (30 days after completion)

• If you've not paid after 6 months, an extra £300 or 5% of the unpaid tax (whichever is more) - plus daily interest - is added to your penalty

• After 12 months - an additional £300 or 5% - plus daily interest - is added.

If you fail to file a return, or deliberately don't include information that could help work out the amount of tax you need to pay, you could be liable for a fine of up to 95% of the total LTT due (plus interest).

Something gone wrong with your Land Transaction Tax return?

If you've made a mistake on your LTT return, or you think you've paid the wrong amount, don't panic.

• You can use the online form to notify gov.wales of a mistake up to 12 months after filing

• If the mistake includes an underpayment, it's important pay the amount you think you owe immediately, to avoid penalties

• If you think you've overpaid, you can amend your LTT return and apply for refund online