The first devolved taxes for Wales will go live on 1 April 2018
The UK and Welsh governments have confirmed that the first devolved taxes for Wales will go live as planned on 1 April 2018.
The two taxes to be devolved from 1 April 2018 are Land Transaction Tax (LTT), which replaces Stamp Duty Land Tax (SDLT), and Landfill Disposals Tax, which replaces Landfill tax. The two devolved taxes are similar to the two taxes that they are replacing but differ in a number of important respects, most noticeably the rates themselves. The new taxes will be under the care and management of the newly formed Welsh Revenue Authority. Transactions that took place in Wales under the existing taxes up to 31 March 2018 will continue to be dealt with by HMRC.
The rates of LTT for residential property were originally set by the Welsh Minister for Finance on 3 October 2017 but, following the introduction of an SDLT exemption for first time buyers of residential property up to £500,000, announced in the UK Autumn Budget in November 2017, the Welsh Finance Minister announced revised land transaction tax residential rates in December 2017. In response to the UK Government’s Budget announcement, the Welsh Government has decided not to introduce an equivalent of the SDLT first time buyers’ relief. Instead it has increased the threshold at which LTT first becomes payable from £150,000, the threshold proposed 3 October 2017, to £180,000 which will apply from the introduction of LTT on 1 April 2018. For comparison, the threshold at which SDLT becomes payable (ignoring the relief for first time buyers) remains at £125,000. The average property price for a first-time buyer in Wales is £135,000, well below the £180,000 threshold.
For those who already own a residential property, the 3% additional rate of SDLT has also been carried across into LTT. It is important to remember that these LTT rates are only in respect of residential property. Like its SDLT equivalent, there are different thresholds and rates for commercial property and farmland – these rates can be found in the original statement of 3 October 2017 (NB the LTT residential rates in that statement have now been revised as noted above).
If you think that all this is getting rather complicated, you will be in good company. And this is only the end of the beginning. With effect from April 2019, devolved income tax rates are also coming to Wales, mirroring similar changes already in place in Scotland. We do not know what the rates and bands will be, and the Welsh Government may decide to keep them the same as those for the UK, but if the Scottish experience is a guide to the future, we are likely to see some changes made. It will add further complexity and the increased need to consider devolved taxes as part of any tax planning.