Guidance on cross-border and cross-title land transactions.
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LTTA/2060 What is a cross-border transaction?
‘Cross-border’ transactions involve:-
'Multiple property’ transactions
- the purchase of multiple property interests which falls within more than one tax jurisdiction, for a single agreed amount of consideration, whether in a single transaction or a series of associated transactions. Purchases of land in Wales on or after 1 April 2018 are not linked for tax purposes with any transaction elsewhere in the UK (or transactions in Wales made before 1 April 2018). For example the purchase of a shop in Cardiff, a shop in Edinburgh and a shop in Bristol as part of a single transaction or series of associated transactions will be a cross-border multiple property transaction because it includes property in 2 or more tax jurisdictions;
Single ‘cross-title’ property transactions
- the purchase of a single property interest that includes land on both sides of the Welsh-English border, for example a field that is bisected by the border so that the land on each side of the border abuts and is contiguous with the land on the other side of the border. The property interest will often be represented by a single title registered at HM Land Registry. This subset of cross-border transactions will be referred to as cross-title transactions.
Tax treatment of cross-border transactions
For both types of cross-border transaction, the total consideration given must be apportioned on a just and reasonable basis
LTTA/2070 How to identify a cross-border transaction
For many transactions involving land in more than one tax jurisdiction it will be easily identifiable what land is in one jurisdiction and what land is in the other. In many cases separate titles will exist for the land in each jurisdiction.
In a small number of cases there will be a single property title that includes land on both sides of the Wales and England border. HM Land Registry official copies of title can assist customers to identify these cases.
LTTA/2080 How to identify the border on HM Land Registry titles
The border may be shown on HM Land Registry title plans where the land is on the border or close to it. If so, it is shown as a broken and dotted line. The position of this line is not conclusive whether the land in the title falls in wholly or partly in England or Wales, its position in relation to the red edging on the title plan may be an indication.
There will, however, be a number of titles where the border is not marked on the title. Where that title is a cross-title property it can be identified as such by the Part A property register annotation, which will include the following statement: ‘The land in this title may be located partly in England and partly in Wales’. In these cases it will be necessary for the taxpayer or their adviser to identify separately from the title where the border lies on a just and reasonable basis. For those close to the border but not crossing the border, the local authority code will assist in establishing the relevant tax jurisdiction.
In cases where the border is not marked on the title plan it will need to be identified from other geographical sources.
HM Land Registry Business e-service customers have access to a free MapSearch service, available through the HM Land Registry portal. It allows the user to:
- find out whether a property is registered
- view its location
- obtain the title number
- see the ownership of title
Users can find where the border falls on those titles where it is not marked. This will then allow the taxpayer to work out which return(s) are needed. The service can also help work out the apportionment of consideration for the land in England and in Wales, on a just and reasonable basis.
Different land plot locations
There are a small number of cross-border properties with separate areas of land that aren’t neighbouring. Such as where one area of land falls wholly in one country, and the second separate area, lies wholly in the other country. It’s important to find out if a cross-border property includes land split in this way.
There can be transactions where the property title is a distance from the border and the border isn’t shown. To help find the border and the tax jurisdiction(s) where the land is located, you can use:
- evidence from the register of title
- knowledge of the UK’s geography
- local authority searches from planning applications
For those titles, close to the border but not crossing the border, the local authority code will help find the right tax jurisdiction.
LTTA/2090 Return obligations for cross-border transactions
The following assumes the apportioned consideration in respect of land in each jurisdiction is notifiable.
Consideration given for the totality of the title is usually the purchase price paid for the whole of transaction, not just the apportionment to Wales. Where the land transaction includes a number of titles the consideration given should include all titles . including the total consideration given for any cross-title properties included in the transaction.
For a multiple property cross-border transaction, where there are separate properties in different tax jurisdictions, the total consideration will need to be apportioned on a just and reasonable basis and:
- for land in England or Northern Ireland, a SDLT return will need to be made to HMRC, entering code 6996 instead of the local authority code;
- for land in Wales an LTT return will need to be made to the WRA, entering the relevant Welsh local authority code for the land that is actually in Wales and also answering ‘yes’ to the multiple property cross-border question (the question applicable on the return is “Is this transaction part of a number of other transactions elsewhere in the UK, but outside Wales?”) and answering ‘no’ to the cross-title question on the return (“Is this a Wales-England cross-title transaction?”).
- for land in Scotland - an LBTT return will need to be made to Revenue Scotland (RS) entering the relevant Scottish local authority answer ‘yes’ to the cross-border question.
In respect of cross-title transactions (this is where the Welsh – English border runs through the land in the transaction), then the consideration given for the land needs to be apportioned on a just and reasonable basis for the purposes of the respective taxes, and:
- for land in England a SDLT return will need to be made to HMRC, entering code 6997 instead of the local authority code;
- for land in Wales a LTT return will need to be made to the WRA, entering the relevant Welsh local authority name for the land that is actually in Wales and also answering ‘no’ to the multiple property cross-border question (“Is this transaction part of a number of other transactions elsewhere in the UK, but outside Wales?”) and ‘yes’ to the cross-title question on the return (“Is this a Wales-England cross-title transaction?”).
Where the land is registered on a single title crossing the Welsh/ English border, 2 returns will need to be made, one to HMRC and one to the WRA if those respective land transactions are both notifiable. However, a single application will need to be made to HM Land Registry to register the single title for the land in Wales and in England.
Transactions that include land on either side of a border are not linked for the purposes of the respective linked transaction rules in LTT, SDLT and LBTT.
LTTA/2100 Apportionment of consideration
The total consideration given for a cross-border transaction must be apportioned on a ‘just and reasonable’ basis to arrive at the consideration relating to the land in each tax jurisdiction.
The taxpayer is under an obligation to split the consideration given, based on the relative value of the land that falls into each tax jurisdiction.
The apportionment may be undertaken by an independent person qualified to make such a valuation or the taxpayer themselves, based on the relevant facts of the transaction. What would not be a just and reasonable apportionment would be for the taxpayer to make a guess at what might be the right figure.
Also the taxpayer cannot simply rely on a contract or agreement that seeks to apportion the consideration between the land in different jurisdictions if this does not reflect the relevant facts of the transaction.
The Valuation Office Agency (VOA) website provides some helpful guidance, (although it is in relation to capital gains tax), for what factors should be considered when apportioning value or consideration between different elements of the land.
The VOA guidance in relation to cases where there is a claim to private residence relief (particularly part 6 (paragraphs 8.60 - 8.64)) is helpful, see 8.61 Interpretation of "Just and Reasonable" Method.
The same principles established here are relevant for all such apportionments required for cross-border transactions for LTT and SDLT.
As noted in the VOA guidance, simply using the area of land on the title and apportioning the consideration given between land in the different tax jurisdictions may not result in a just and reasonable apportionment. It may be appropriate for a field with no buildings where there is little difference in value between the land in Wales and the land in England. However, when there are buildings on the land, then clearly that part of the land with a building on it is likely to have more value than land without a building upon it. Such an approach will also be relevant where there is a part of a building in one jurisdiction and the other part is in the other jurisdiction. The building, its condition and the use to which it is (and can be) put will be relevant in apportioning the consideration.
The following examples have been developed in collaboration with the VOA and are intended to highlight the types of issues that may need to be take account of in establishing a just and reasonable apportionment, and illustrate why the facts in each case are relevant to the apportionment. People seeking more information on valuations are encouraged to visit the VOA website.
A farm is being acquired by Mr and Mrs A. It consists of 20 different fields, some of which include the farmhouse and various agricultural buildings. 8 of the fields are for land wholly in Wales and 9 are for land wholly in England. The remaining 3 fall both in Wales and England. The transaction is therefore a cross-border transaction that includes land that meets the description in both – cross-border portfolio and cross border cross-title transactions. The consideration given for the transaction will need to be apportioned on a just and reasonable basis between that given for the land in Wales and that for the land in England. This apportionment will need to take into account where any buildings are located and the nature of those buildings. It may also be that some parts of the land may be more valuable because of their location, access, use or development (e.g. drainage) and these distinctions will need to be reflected in the apportionment. If the contract contains details of how the consideration given for the land in Wales and the land in England is to be split that apportionment should only be used if it is a just and reasonable apportionment.
A single property where the whole of a house and the majority of the garden is in Wales (total 50% of the land area of the interest transferred) and the rest of the garden (representing 50% of land area of the interest transferred) is in England. The property therefore is a cross border cross-title transaction). On these facts a just and reasonable apportionment may not (unless there were exceptional reasons) simply be 50% of the consideration returned in Wales and 50% in England. This is because the consideration given for the land in Wales must include not only the land itself but also the just and reasonable amount of the consideration given for the house as well.
A just and reasonable apportionment might be determined by establishing what the property would have cost without the part of the garden in England. A chartered surveyor or estate agent may be able to provide a just and reasonable amount that the area of the garden in England alone adds to the consideration given for the property in total. The chartered surveyor or estate agent may consider that with the garden, the property would have a market value of £300,000 but without the ‘English’ garden, the market value would have been £280,000. The just and reasonable apportionment of the consideration actually given on this basis, for the ‘English’ garden will be ((300,000-280,000)/300,000) x 100 = 6.67%. The actual consideration given for the title was £290,000. Using the just and reasonable apportionment established the consideration that will need to be returned for land transaction tax purposes is £270,657 (£290,000 x 93.33%) and the consideration appropriate for the SDLT return is £19,343 (£290,000 x 6.67%). As the amount relevant for SDLT is below the current (as at April 2018) notification limit, a return does not need to be made to HMRC (subject to the transaction not being linked to other transaction(s) that would make the ‘English’ transaction notifiable).
Apportionments that are intended to minimise tax or return obligations will not be just and reasonable apportionments. Using XX5, a professional valuer may establish that more than 50% of the land value is in Wales, because the house is located on that side of the border. However if the taxpayer were to split the consideration equally so that half is returned to both WRA and HMRC to maximise the use of the zero rate bands in both tax regimes – and the facts did not lend themselves to such a split – that will not be just and reasonable and may lead to penalties being imposed.
Similarly, where the amount of consideration given is notifiable to one of the tax authorities and is less than or marginally higher than the relevant notification level (£40,000 for both taxes where what is bought is a major interest) then simply using the figure of £40,000 is not acceptable either, because it potentially results in a tax underpayment in the other tax regime, or, because it avoids a filing obligation to one of the tax authorities. Where a return obligation is avoided by reducing the consideration returnable to either WRA or HMRC then late filing penalties may arise if that return is, following enquiry, made late (WRA and SDLT/HMRC inaccuracy penalties pages).
Finally, it is important to note that the amounts established by the just and reasonable apportionment must in total equal the amount of consideration actually given (or in the case where a market value must be used, that market value), and that a consistent basis of valuation applied to each part of the land transaction that falls into each tax jurisdiction. For example, if the apportionment is established using an open market value for the Welsh and the English land (of, say £200,000 and £50,000 respectively) but the consideration given is £270,000 (that is £20,000 more than the respective open market valuations) then the consideration returned on the two returns must equal £270,000. An apportionment of £216,000 and £54,000 (a total of £270,000) would be just and reasonable as it reflects the 80/20 split of the open market value of the land in Wales and in England. However, returning just £200,000 and £50,000 to the 2 tax authorities is not acceptable (except in specific cases where an open market value must be used for example the deemed market value rules that apply to cases where the buyer is a company and the seller is connected to the company).
LTTA/2110 Enquiries into a taxpayer’s just and reasonable apportionment
Where a taxpayer is required to make a just and reasonable apportionment of the consideration paid between land in Wales and land in England or elsewhere, under the normal rules for opening enquiries or making determinations or discovery assessments, the WRA, HMRC or Revenue Scotland may challenge the return made to them. In challenging the return made, the WRA will endeavour to reach an agreement on the apportionment with other tax authorities, in conjunction with the taxpayer.
The enquiry will look at the apportionment of the consideration to establish the basis on which the apportionment was made. If the evidence of the just and reasonable apportionment used is absent or appears to be unreasonable, it is possible that the tax authority which opened the enquiry will ask the VOA to establish the just and reasonable apportionment of the consideration for the respective returns. If this occurs, the WRA, HMRC and Revenue Scotland will accept the decision of the VOA.
Either tax authority can ask the VOA to provide either a non-negotiated apportionment or a negotiated apportionment.
Where a taxpayer’s apportionment is accepted, the enquiry will be closed and no further action will be required.
Where the non-negotiated apportionment differs from the taxpayer’s and the tax authority that has opened the enquiry decides that it will not pursue the matter (perhaps because the difference in apportionment results in only a marginal adjustment to the consideration returnable or tax payable) it may decide to conclude the enquiry by accepting the taxpayer’s apportionment. Where the adjustment is material, the relevant tax authority will seek the taxpayer’s agreement to the proposed just and reasonable apportionment amounts.
Where a negotiated apportionment has been established, the enquiry should be settled on this basis (the apportionment having been agreed by both the VOA and the taxpayer).
There may be cases where the taxpayer and the tax authority cannot settle the case by agreement because they cannot agree the just and reasonable apportionment. In such cases, the enquiry will be closed based on the VOA apportionment. The taxpayer may choose to exercise their right of review or appeal. During any appeal, the question of apportionment may need to be referred to the Upper Tribunal (Lands Chamber) by the First Tier Tribunal or Upper Tribunal (Tax Chamber). Once the appropriate apportionment has been determined then the appeal will return to the Tax Tribunal if prior agreement between the taxpayer and the relevant tax authority is not reached.
Where additional tax is payable as a result of the enquiry and the original apportionment of the consideration given is not found to be just and reasonable, a penalty may be sought due to the inaccuracy made in the return.
When the tax liability for the return that was enquired into is final, the taxpayer will be able to adjust the consideration payable by amendment to the tax return for the other tax jurisdiction (if within the time limits imposed for such amendments to returns in the respective regimes). Alternatively, the taxpayer may make a claim to the ‘non-enquiring’ tax authority to obtain a repayment if appropriate under section 63 of TCMA 2016 for land transaction tax or paragraph 34 of Schedule 10 to the Finance Act 2003 (‘FA 2003’) for SDLT. When making a claim, the taxpayer should include the letter that closed the enquiry, settled the appeal by agreement, or sets out the decision of the Tax Tribunal.
However, the taxpayer will still need to comply with the requirements of section 67 TCMA 2016 and paragraph 34A of Schedule 10 to the FA 2003. In particular, Case2/Case B and Case 3/Case C should be considered:
- Case 2/Case B ensure that a taxpayer should amend their return if possible before making a claim under these provisions, and
- Case 3/Case C will result in a refusal to make the refund if the taxpayer has delayed making their claim when they had time to make an amendment to their return.
In relation to Case 3/Case C situations, both the WRA and HMRC will consider that where a taxpayer makes a claim within 3 months of the closing of the enquiry by the other tax authority that the claim has been made in an appropriate time frame and it will not be refused.
LTTA/2120 Registration of title at the Land Registries
Ownership of land and property in England and Wales is registered by the HM Land Registry.
Ownership of land and property in Scotland is registered by Registers of Scotland.
Ownership of land and property in Northern Ireland is registered by Land and Property Services.
In all cases, registration for notifiable transactions is subject to confirmation that a SDLT/ LTT/ LBTT return has been made as appropriate to the relevant tax authority in respect of the transaction.
For transactions on or after 1st April 2018 that include land in England and Wales, the taxpayer will still be able to make a single application for registration to HM Land Registry. Any single application will need to include, where both transactions are notifiable to the respective tax jurisdictions, evidence, in the form of both a LTT certificate and a SDLT certificate, that the respective returns have been made.
There will be cases where the cross-border transaction will include land in Wales or England that is not notifiable to either WRA or HMRC (or potentially both). In these cases it will be necessary for the taxpayer to notify HM Land Registry when sending in the relevant transfer form(s) that there is only one certificate (or no certificates) because the consideration given for the land in one country, or in both tax jurisdictions, is not notifiable to one, or both, tax jurisdiction.
There are some registered titles (about 1,000) which are partly in England and partly in Wales. Approximately half of these cross-border titles include only a very small part of land in one country with the vast majority of the land located in the other (perhaps due to mapping tolerances). In these cases, consideration should be apportioned on a just and reasonable basis as usual. If on this basis the consideration for the minor part is found to be negligible or below notification limits, then HM Land Registry should be advised as for any other land transaction that is not notifiable for SDLT or LTT purposes.
A taxpayer buys half a hectare of bare land with hope value that a planning application for a change of use from agricultural use to residential use will be successful. The agricultural land value is £10,000. However, with the hope of a successful planning application, the consideration given is £200,000. The title document shows that approximately 1% of the land (by area and value) falls into Wales. If the land in Wales is separated from the main part of the land, perhaps by a stream that is the border, it may, on a just and reasonable basis, be that the value of the land in Wales is negligible as it is a very small parcel of land which is separated from the bulk of the land by water and not accessible by land above water which is under common ownership (or that is to be acquired). In this example the HM Land Registry transfer document will need to be accompanied by the SDLT5 certificate and a letter explaining that on the basis of just and reasonable apportionment, the consideration for the Welsh element of the land transaction is negligible and was not notifiable in Wales, therefore there is no WRA certificate.
A taxpayer buys land registered on a single title that amounts to 200 hectares. 1% of the land is in Wales. In this case, whilst the amount of land in Wales is only 1% and therefore small in relative terms the actual land in Wales is significant in absolute terms – equating to 2 hectares. The consideration given for the land will need to be apportioned between Wales and England on a just and reasonable basis. Whether the transaction needs to be notified for LTT will depend on the amount of consideration apportioned to Wales.
The situation is similar to example 1, however, the amount of consideration given is not for hope value but for the fishing rights that are acquired with the land. The fishing rights apply to both sides of the stream. In this case whilst only a small part of the land is in Wales it is of near equal value to the land in England due to the banks of the stream on each side having fishing rights. Assuming the stream’s banks are of equal length (and the fishing rights match that length) the consideration will need to be split more equally than is reflected solely when comparing the land in each tax jurisdiction. Both SDLT and LTT returns will be required if the consideration apportioned to each part of the land is above notification limits and the relevant certificates will need to be produced to Land Registry for both applications.