April 2018 will see Wales introduce its first tax in almost 800 years, with Land Transaction Tax (LTT) replacing Stamp Duty. It represents the Welsh Government’s first tax since devolution took place in 1999.
LTT will be implemented alongside a new landfill tax which has also been devolved as part of the Wales Act 2014. 2019 will also bring the power to adjust income tax rates up or down within any band by 10p.
The newly gained tax-raising powers come at a time where the property market in Wales is beginning to show signs of significant movement. Principality recently suggested in a study that house prices in some areas of the region had increased by more than 8%- well above the UK average.
Such increases will potentially mean more people than usual will be paying attention to the incoming tax revisions for 2018/19. Indeed, only today has Welsh Cabinet Secretary for Finance, Mark Drakeford, suggested a proposal to tax empty properties and land as the government seeks to test the muscle of the new powers.
How will it affect Welsh buyers?
You may or may not have noticed the headline impacts of LTT for Welsh residents: Less duty to be paid on lower value properties, and more for more expensive dwellings. First-time buyers will no longer be exempt.
Another key aspect to note when looking at incoming rates is that the top and bottom rates remain the same as they sit currently. The cheapest properties will remain duty-free, while those over £1.5million will be taxed at 12%.
The threshold for paying LTT will increase to £180,000, an increase of £30,000 from today. Properties valued at between £180,000 and £250,000 will pay 3.5%, an increase on England (and as it stands today, Wales) at 2%.
It’s important to note though, that while the rate has gone up, along with the increased threshold, still 9 out of 10 buyers will pay the same amount or less as they would today. For those buying a property under the value of £250,000, they will pay up to £500 less than their English counterparts.
Who will pay more?
Those hardest hit though are the number of first-time buyers purchasing a property worth more than the threshold amount. Despite the current trend of property prices outstripping inflation, and the challenges already faced by those entering the market, those first-time buyers purchasing a property over £180,000 will face a charge of at least 3.5%.
A large hike in LTT will be placed on properties over the value of £400,000, which will be taxed at anywhere between 7.5 and 12%. Those purchasing a property worth between £750,000 and £925,000 will pay 10% LTT. In England, the same property would incur 5% in Stamp Duty.
Are the rates set in stone?
The new tax will come into effect at the start of the new tax year- 6th April 2018. From that date, LTT will be payable to and administered by the newly-established Welsh Revenue Authority (WRA.)
Each year, in a similar manner to the UK Government, the Welsh Assembly will vote on a budget, which will include potential tax increases or decreases. These will take effect in the proceeding tax year.
A full breakdown of the rates, which were ratified in the Welsh Tax Policy Report, January 2018, alongside further details, is available here.