The Welsh replacement for Stamp Duty Land Tax (SDLT) will increase the cost for many purchases of farmland.
The Land Transaction Tax (LTT) – the first Wales-only tax in more than 800 years – is set to apply to properties in Wales from 1 April 2018, according to Jeremy Moody, secretary and adviser to the Central Association of Agricultural Valuers (CAAV). “This could see a number of farm buyers with a higher bill to foot.”
The tax charge will be increasing for non-residential and mixed use properties – including farms – that sell for more than £1m. The tax will charge at 6% on anything over the £1m threshold – compared to 5% in England – although non-residential and mixed use properties worth between £150,000 and £250,000 will enjoy a reduction in rate, from 2% to 1%.
As an example, the freehold sale of a farm in Wales, valued at £2m, would result in an LTT charge of £98,440 from April 2018, compared to £89,450 under SDLT. “Where land sells at £8,000 an acre, any sale of more than 125 acres will attract more tax under LTT than it would under SDLT. A farm at £4m would see a Welsh LTT bill of £218,440 compared to £189,450 under SDLT.”
Higher value tenancies will also be affected, with non-residential and mixed properties subject to a 2% tax from £2m in Wales, lower than the £5m threshold under SDLT, though that may affect few Welsh Farm Business Tenancies,” says Mr Moody.
For purely residential properties, the tax on those selling between £400,000 and £750,000 will increase from 5% to 7.5%, while it will increase from 5% to 10% for those over £750,000. Tax on residential properties worth below £250,000 is set to fall. However, the tax is to raise more money.
As in the rest of the UK, anyone who already has a dwelling and buys another purely residential property will be subject to an extra 3% on top of the LTT. This affects more transactions than buy-to-let and second homes, from DIY developers to parents buying with children.
“This new Wales-only tax is relevant to farmland purchases as these are often at the higher values that will attract the increased tax,” says Mr Moody. As well as bearing directly on property transactions in Wales, differences in rates may affect prospective purchasers considering whether to buy property in Wales or elsewhere in the UK.”