Land Transaction Tax - What is Land Transaction Tax?
Land Transaction Tax, sometimes abbreviated to LTT, is a tax on the purchase or lease of property in Wales.
LTT is one of the many taxes might come across a freelancer or entrepreneur. Read more about taxes for small businesses on our blog.
Despite the name, LTT applies to both land and buildings. The amount you pay depends on how much the property is worth, whether the property is commercial or residential, and whether the property is purchased or leased.
Land Transaction Tax and Stamp Duty
Until 2015, Stamp Duty Land Tax (SDLT) applied to property transactions made throughout the UK. Now, the tax due on land and property varies between countries.
In April 2015, the Scottish government replaced Stamp Duty with Land and Buildings Transactions Tax (LBTT), which applies to the sale and lease of properties in Scotland. In May 2018, Land Transaction Tax was introduced for properties leased or sold in Wales. Stamp Duty Land Tax is still applicable in England and Northern Ireland.
When to pay Land Transaction Tax
Land Transaction Tax is due when you:
- Buy a freehold property (i.e. a property that you own outright)
- Buy a new or existing leasehold (i.e. a property that you own for an agreed period of time)
- Exchange land or property for payment. For example, taking on a mortgage or buying a share in a house.
There a few circumstances under which you don’t need to pay LTT. For example:
- There is no exchange of money
- No other form of payment is made
- You receive property through a divorce or dissolution of a civil partnership
- You are left property in a will.
You can read more about other exceptions to Land Transaction Tax on the Welsh Government’s website.
How to pay Land Transaction Tax
If you are liable for LTT, you must submit a tax return and pay the amount due to the Welsh Revenue Authority within 30 days of making a taxable transaction. If you don’t file the return and make your payment within the 30 day deadline, you might be liable to pay a penalty or interest.
There are a few ways to complete a LTT return. You can either ask a solicitor or agent to handle the LTT return process on your behalf, or you can do this yourself with a paper tax return. Unlike LBTT is Scotland and SDLT in England and Northern Ireland, Land Transaction Tax returns cannot be processed online.
If you don’t need to pay Land Transaction Tax, you are not required to submit a LTT return.
Land Transaction Tax for residential properties
LTT is charged on the purchase of residential properties valued at £180,000 or more. The amount due is determined by the following price bands:
- Up to £180,000: 0%
- £180,000 to £250,000: 3.5%
- £250,000 to £400,000: 5%
- £400,000 to £750,000: 7.5%
- £750,000 to £1,500,000: 10%
- Over £1,500,000: 12%
For example, you purchase a new home worth £450,000. You pay nothing on the first £180,000, 3.5% on the next £70,000 (£2,450.00), 5% on the next £150,000 (£7,500), and 7.5% on the remaining £50,000 (£3,750). You pay a total amount of £13,700.
If you purchase an additional residential property that does not replace your main home, you may need to pay higher LTT rates. For additional homes, Land Transaction Tax is charged at an additional 3% on top of the standard rate.
If you lease a residential property, you may need to pay LTT on the ‘purchase premium’, or the purchase price of the lease. If this is the case, you will need to follow the same rates as freehold (i.e. not leased) residential properties.
Land Transaction Tax for commercial properties
If you purchase land or property for your business (e.g. an office, a shop, agricultural land) you will need to pay LTT using the following bands:
- Up to £150,000: 0%
- £150,000 to £250,000: 1%
- £250,000 to £1,000,000: 5%
- Over £1,000,000: 6%
For example, you purchase a new workshop for your business, it is worth £180,000. You pay nothing on the first £150,000, then 1% on the remaining £30,000 (£300). You pay a total of £300.
Some leased commercial properties are also liable for LTT. When LTT is payable on leasehold properties, the following bands apply:
- Up to £150,000: 0%
- £150,000 to £2,000,000: 1%
- Over £2,000,000: 2%
Properties that are used for both commercial and non-commercial purposes are described as ‘mixed-use’. Mixed-use properties follow the same tax bands and commercial properties. An example of a mixed-use property is a a building which contains a flat above a shop.
Land Transaction Tax and Debitoor
Like other forms of PP&E, land and buildings are important company assets that can be a major expense. With invoicing software like Debitoor, recording expenses and tracking the value of assets is simple.
When you create a new expense in your Debitoor account, you are given the option to mark it as an asset. You can then categorise the asset accordingly, and apply depreciation if necessary.