Guidance on land transactions for Land Transaction Tax.
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LTTA/2000 Land transactions
Land Transaction Tax (LTT) is a devolved tax that applies to transactions involving the acquisition of chargeable interests in land and buildings in Wales. LTT replaces Stamp Duty Land Tax (SDLT) in Wales.
The tax was introduced by the Land Transaction Tax and Anti-avoidance of Devolved Taxes (Wales) Act 2017. This guidance is intended to supplement and clarify the detail in the Act and supporting subordinate legislation.
The tax operates in relation to transactions in Welsh land that occur on and from 1 April 2018.
However, for certain transactions that complete on or after 1 April 2018, for certain extensions to leases, and for certain transactions in land by partners in partnerships, transitional rules may apply.
This guidance broadly follows the layout of the legislation, but the details on the individual reliefs that may be claimable by a taxpayer are provided here.
LTTA/2010 Land transactions and chargeable interests
(Sections 2-4 LTTA)
Land Transaction Tax (‘LTT’) is chargeable on land transactions. The tax applies whether or not there is any instrument (for example a contract) effecting the transaction, wherever such an instrument is executed and wherever any party to the transaction may be resident. Additionally, land transactions that are effected as a result of an order by a court or as a result of an enactment, are also land transactions for the purposes of LTT.
A land transaction is the acquisition of a chargeable interest by a buyer.
A ‘chargeable interest’ means:
- an estate, interest, right or power in, or over land in Wales, or
- the benefit of an obligation, restriction or condition affecting the value of any such estate, interest, right or power.
other than an ‘exempt interest’.
Chargeable interests in Wales include:
- a freehold estate (the nearest equivalent to absolute ownership, sometimes referred to as an ‘estate in fee simple’)
- a commonhold estate (found in blocks of flats where the owner owns a freehold interest in their flat and is a member of the commonhold association which owns and manages the common areas)
- a leasehold estate (sometimes referred to as a ‘term of years’)
- an undivided share in land
- a right in or over land such as an easement or profit a prendre, for example a right of light
- a rentcharge
- the right to receive rent including ground rent
- the benefit of a restrictive covenant
- the benefit of a positive covenant (an example of the benefit of an obligation)
- an equitable or beneficial interest in land such as a life interest or an interest in reversion or in remainder
- a executor’s or trustee’s power of appointment (the only likely example in practice of a power over land)
- an option.
A chargeable interest is an interest in land, so this would not include movable items within the property or on the land such as fittings (e.g. curtains, carpets and furniture). However, what are commonly referred to as fixtures, are to be treated as part of the chargeable interest. For example, fitted kitchen cupboards and baths and toilets are to be treated as part of the chargeable interest. Further guidance can be found in LTTA/2261.
Land in Wales does not include land below the low water mark. It does however include jetties, piers and similar structures where one end is attached to land in Wales. It also includes land underwater above the low water mark, for example lakes and rivers.
LTTA/2020 Exempt interests
Certain interests in land are ‘exempt interests’. Transactions involving exempt interests are not chargeable to LTT. Certain transactions involving chargeable interests are exempt from charge.
The following are exempt interests:
- a ‘security interest’, that is, an interest or right (other than a rentcharge) held for the purpose of securing the payment of money or the performance of any other obligation. The commonest example of a security interest is a mortgage
- a licence to use or occupy land (however, a document which describes itself as a licence may in fact be a lease, especially if the practical consequence is that the grantee has exclusive occupation)
- a tenancy at will (however, a tenancy described as a tenancy at will may in fact be some other tenancy such as a periodic tenancy, especially if rent is paid)
- a franchise granted by the Crown, for example, the right to hold a market or to take tolls
- a manor (the ‘Lordship of the Manor’ or seignory, but note that a seignory may be accompanied by chargeable interests such as profits a prendre).
A ‘licence’ is permission given by the owner of land to another person to use the land. A licence allows someone to enter the land of another. It permits them to access the land where it would otherwise amount to trespass. Importantly, it does not confer any interest in the land to the person who is granted the licence. However, if there is exclusive possession given by the licence then the arrangement is likely to be a lease rather than a licence.
A ‘tenancy at will’ is an arrangement, whether documented or not, where the tenant occupies land as tenant with the consent of the owner on the basis that the arrangement can be brought to an end by either party at any time. The arrangement also automatically ceases if either party dies or if the owner sells the land. A tenancy at will, because it does not create an estate, and cannot therefore be assigned by the tenant or their executor, is not treated as a lease for the purposes of LTT.
A chargeable interest held by a financial institution as part of an alternative property finance arrangement may be an exempt interest if it meets certain conditions.
LTTA/2030 Acquisition and disposal of chargeable interest
(Section 6 LTTA)
Obligations under LTT are to be met by the buyer, or the deemed buyer, that is the person, or persons, who are acquiring the chargeable interest.
A person, the buyer, acquires a chargeable interest when:
- that person becomes entitled to the interest (whether on its creation or subsequently)
- that person’s interest benefits by the surrender or release of the interest, or
- that person benefits from any variation to the interest.
A person, the seller, disposes of a chargeable interest when:
- that person ceases to be entitled to the interest or the interest becomes subject to the newly created interest
- that person ceases to be entitled to the interest on surrender or release, or
- that person’s interest is subject to or limited by the variation of the interest.
The acquisition of an interest will therefore include the acquisition of a freehold interest and the assignment of a lease from a former tenant by a new tenant. It will also include the creation of an interest, so, where a lease is granted out of another interest (either a freehold or superior lease) the person being granted the lease is acquiring that interest and is the buyer of the newly created interest in the property. Where a lease is surrendered or the tenant is released from the lease, the landlord has acquired an interest in the property.
- the tenant gives the landlord consideration in money or money’s worth for the variation of a lease, but the rent and the term of the lease do not change, the variation is treated as an acquisition of a chargeable interest by the tenant
- the variation of a lease reduces the rent, it is treated as an acquisition of a chargeable interest by the tenant, or
- the variation of a lease reduces the term of the lease, it is treated as an acquisition of a chargeable interest by the landlord.
LTTA/2040 Linked transactions
(section 8 LTTA)
There are some situations when 2 or more property transactions that involve the same buyer and seller or connected persons, are treated as being linked for LTT purposes (see LTTA 6100 and 6110 for further guidance on calculating the tax payable on linked transactions and where a LTT return, or further return, may need to be made in consequence of a later linked transaction).
Transactions are linked where they form part of a single scheme, arrangement, or series of transactions between the same buyer and seller or persons connected to them. They may be concurrent or successive. Section 1122 of the Corporation Tax Act 2010 applies to determine whether the parties are connected.
Transactions are not linked where the same individuals fulfil different roles in each transaction. For example, where:
- in one transaction, Mr A is the buyer and Mr B is the seller, and
- in a second transaction, Mr B is the buyer and Mr A is the seller
the transactions will not be linked, unless Mr A and Mr B are connected persons.
These rules aim to ensure that transactions cannot be artificially split into smaller transactions (or separate parts bought by connected persons) in the hope of reducing or eliminating the LTT payable. People connected to a buyer or seller will count as being the same buyer or seller where the land transactions form part of a single scheme, arrangement or series of transactions.
If 2 transactions are documented separately, the form in which the transactions are documented will not determine whether they are linked or not. For example, documenting transactions with separate contracts will not prevent them being linked if the transactions are under arrangements which indicate they are part of a single scheme, etc. These arrangements do not need to be in writing or be legally binding.
A series of transactions means something more than that one transaction follows the other. There must be something else to connect the transactions.
However, it would be a question of fact whether the purchases are totally unrelated. In particular the buyer needs to consider whether the fact that the first transaction had happened had affected the terms of the second transaction.
Where successive transactions are linked, for example the grant of an option and its exercise, extra tax can be due for the first transaction.
Any extra tax is payable at the same time as tax is payable on the second transaction.
Linked transactions with the same effective date can, if the buyer chooses, be reported as a single notifiable transaction using a single land transaction return.
Where this is done, the transactions will be treated as a single transaction and all the purchasers, if more than one will be treated as joint purchasers.
Where an option has been granted the grant of the option and the exercise of the option will be linked transactions. However, if the person who has acquired the option does not exercise it within the time limits in which the rights under the option can be exercised, then, if the seller has sought alternative buyers, the grant of the option and its exercise will not be linked transactions.
Where transactions are linked but the nature of the land in the subsequent transaction differs from that in the first or earlier transactions, the tax rates and bands applying to the earlier transactions may change. For example, the acquisition of a residential property in the first transaction will be liable to the residential (or the higher residential rates), if a later linked transaction occurs for non-residential land then both transactions will need to be treated as mixed transactions and the non-residential rates applied (subject to any relevant claims to multiple dwellings relief).
However, if, as a result of a later linked transaction, there is less tax payable on an earlier transaction, the taxpayer may only claim a repayment if they meet the conditions for repayment to be made. In particular, if the time limit for making the repayment claim has passed then no claim can be made.
LTTA/2050 Transactions exempt from charge
(Schedule 3 LTTA)
The acquisition of an exempt interest is outside the charge to LTT.
There are 5 types of land transactions which are specifically exempt from LTT. No tax is charged on these transactions and no LTT return is required.
LTTA/2050a No chargeable consideration
Land or buildings may be gifted or the ownership transferred to another person for no 'chargeable consideration'. This means that no money (or money’s worth) is given by the buyer (or on their behalf) to the seller, and there is no other consideration which has a monetary value.
However, where a land transaction involves the buyer both being gifted property and assuming existing debt (such as paying a mortgage debt), the debt assumed is chargeable consideration for LTT purposes.
This exemption does not apply where the deemed market value rules apply. In such cases, specific rules apply so that the consideration given is based on the open market value of the subject matter of the transaction.
LTTA/2050b Acquisitions by the Crown
The acquisition of a chargeable interest by one or more of the following is an exempt transaction:
- the Welsh Ministers, the First Minster for Wales and the Counsel General to the Welsh Government
- a Minister of the Crown
- the Scottish Ministers
- a Northern Ireland department
- the National Assembly for the Wales Commission
- the Corporate Officer of the House of Lords or of the House of Commons
- the Scottish Parliamentary Corporate Body, and
- the Northern Ireland Assembly Commission.
However, any land transactions that includes a buyer who is one of the above persons and a person not listed above, will not be an exempt transaction. LTT will be payable on the full consideration given unless a specific relief applies, for example relief for acquisitions by public bodies (where the seller and one of the buyers is a public body), or, trunk roads relief.
LTTA/2050c Transactions in connection with a divorce or dissolution of a civil partnership
Certain transactions made in connection with the ending of a marriage, or a civil partnership formed under the Civil Partnership Act 2004, are exempt from LTT.
The exempt transactions are those made between the parties to the marriage or civil partnership as a result of:
- certain types of court order
- an agreement between the spouses/civil partners in contemplation or in connection to the dissolution or annulment of their marriage or civil partnership, or
- their judicial separation or a separation order.
The exemption is not available if the transaction involves someone other than the spouses or civil partners. For example if the property is transferred under a court order or agreement to one spouse or civil partner and their new partner, or to one spouse or civil partner and the children of the marriage or civil partnership.
LTTA/2050d Assent and appropriations by personal representatives
This exemption applies when property is transferred to another person in a will or on intestacy (i.e. the deceased person did not make a will). The exemption includes property that has outstanding debt secured on it, for example debt secured by a mortgage.
Where the personal representative becomes a trustee of the property on the granting of probate, the transfer of the asset is exempt unless there is any consideration given for the transfer of the property. Similarly, if that person is also a beneficiary of the will, when the property is transferred to them as beneficiary, the transaction will be exempt unless any consideration is given for the transfer of the property.
The transaction is not an exempt transaction if consideration is given for the property (exceptionally this does not include the assumption of secured debt i.e. debt which was secured on the property immediately after the death of the person).
For example, if the person to whom the property is transferred makes a payment to the executor of the will to enable other beneficiaries of the will to maintain the share of the estate left to them, the amount given is treated as consideration for the land transaction.
LTTA/2050e Variation of testamentary dispositions etc.
This exemption applies to transactions which change the terms of a will or intestacy (within 2 years of someone dying) so that a different beneficiary receives a property. Provided the new beneficiary does not make any compensation payment, including, potentially, the assumption of a mortgage or other debt, the transaction is exempt from LTT. A variation in the terms of the will or intestacy in favour of the original beneficiary, does not count as a compensation payment - for example, leaving them something else instead of the property.
In the event that there is chargeable consideration given for the property (such as an equalisation payment), there will, depending upon the transaction being notifiable, be a chargeable transaction. In such cases the parties to the transaction are the original beneficiary as seller and the person acquiring the interest in the property as a result of the variation as buyer.