Land Transaction Tax interpretation provisions: technical guidance

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(section 68)

A major interest in land is:

• an estate in fee simple absolute (a freehold interest), or
• a term of years absolute (a leasehold interest)

whether in law or in equity.

For the purposes of the LTT higher rates, paragraph 29 of Schedule 5 clarifies that the transfer of beneficial interests (for example undivided shares) arising under a trust in a residential property will be treated in the same way as a transfer of a major interest, where the seller of the beneficial interest was:

• immediately prior to the transaction, deemed to own the major interest in the dwelling, and 
• immediately after the transaction the buyer is deemed to own the major interest

(section 69)

The subject-matter of a transaction means the chargeable interest acquired in the land transaction (the ‘main subject-matter’) including any interest or right appurtenant* or pertaining to it that is acquired with it (relating to the main subject-matter).

* ‘Appurtenant’ means any right or restriction which goes with that property, such as an easement to gain access across adjoining land owned by another, or a covenant i.e. agreement to refrain from an activity for the benefit of the adjoining land.

For example, the transfer of a freehold and the transfer or creation or variation of a related right of way is chargeable as one transaction rather than 2 as the right of way is part of the same subject-matter.

In most cases the transaction will include a single registered title for the property and land. In some cases, a transaction may contain several registered titles for what, is in effect, a single property, made up of a property and its land.

The consequences of selling a property and its land as a single transaction, made up of several registered titles is that there are in effect several chargeable interests that as a general rule would be considered as linked transactions. The WRA would expect the tax treatment to match the treatment that would apply had a single registered title covering the same property and land been the subject of the transaction. Therefore one would not expect a tax advantage to arise from dividing a property and its land into separate titles if those titles form part of a single transaction or series of linked transactions.

(section 70)

Market value for LTT is determined in the same way as for the purposes of sections 272 to 274 of the Taxation of Chargeable Gains Act 1992.

Where the consideration for a land transaction is satisfied by the transfer of an asset, services or other non-monetary consideration, the market value of that asset etc. will be the price which the asset etc. might reasonably be expected to have cost in the open market. This is the case even where consideration is given.

The market value of an asset etc. does not normally include Value Added Tax (VAT) even if VAT is chargeable on the transfer of the asset etc. This is because market value is based on a hypothetical transaction, not on the actual transaction. However, there are in LTT a number of circumstances where the amount of VAT actually paid, or notionally payable, by the taxpayer on the transaction must be added to the market value established. These rules apply in relation to the calculation of chargeable consideration for:

• exchanges
• carrying out of works, and
• the provision of services

Where the amount of the chargeable consideration needs to be established using a market valuation it is the buyer’s responsibility to provide it and the WRA will not prepare, or agree before a return is made, valuations for a taxpayer.

The valuation of assets etc. can be a complex matter requiring professional qualifications. In taking reasonable care in filing their tax return, a taxpayer may want to consider obtaining a valuation from a person competent to do so and who has been instructed to provide a valuation for the purpose of the tax legislation. If a tax return contains errors relating to valuation, a failure to instruct an appropriately qualified valuer may be relevant to assessing whether there should be a penalty and the type of penalty. Appropriate evidence of the valuation should be retained. Where the WRA needs to establish a valuation, or wishes to check a taxpayer’s valuation, it will employ a professional valuer.

(section 71)

The effective date of a transaction determines when a liability to LTT arises. It also determines when the filing obligations arise.

The general rule is that, except as otherwise provided, the effective date of a land transaction is when that land transaction is completed.

There are important exceptions to this general rule:

• substantial performance (LTTA/2150)
• options and rights of pre-emption (LTTA/2240)
• agreement to lease (LTTA/4100)

In cases where the taxpayer is entering into a lease that continued after a fixed term or a lease granted for an indefinite term (LTTA/4030) where the return asks the taxpayer to enter the effective date of the transaction, please use the day after the end of the period for which the lease is treated as continuing.

In cases where the taxpayer is entering into a rent reconsideration (LTTA/4090) where the return asks the taxpayer to enter the effective date of the transaction, please use the day after the day of the rent reconsideration.

(section 72)

Residential property is defined as:

• a building, or part of a building, that is used or suitable for use as one or more dwellings, or is in the process of being constructed or adapted for such use
• land that is or forms part of the garden or grounds of such a building (including any building or structure on such land)
• an interest in or right over land that subsists, or is to subsist, for the benefit of such a building or such land

For most taxpayers it should be obvious when they are acquiring residential property. For example a building that has been in use as a dwelling up until the point of sale, including the garden or grounds will clearly be residential property. A chargeable transaction is a residential property transaction and subject to the residential property LTT rates and bands where the property transferred consists entirely of an interest that is residential property.

Where the property transferred does not consist entirely of an interest in residential property then the non-residential property LTT rates and bands apply to that transaction.

In cases where a building contains a dwelling and something else (for example, a shop with a flat above it), or where the dwelling has land that is not part of the garden or grounds (for example, a farmhouse with farmland), the treatment will be that the building acquired is either itself a mixture of residential and non-residential property, or is part of a transaction that includes both residential and non-residential property, and therefore the interest is not solely of residential property and the non-residential LTT rates will apply to the transaction.

It is worth noting that, as explained in the higher rates section of the guidance, the acquisition of a non-residential property that includes a dwelling isn’t chargeable to higher residential property LTT rates and bands. However this doesn’t stop the dwelling part of that acquisition being subsequently taken into account as a dwelling when assessing how many dwellings a person holds for the purposes of the higher rates rules.

The use (or suitability of use) of the property as a dwelling is to be assessed at the effective date of the transaction. If, at that date, the property is used as a dwelling or is suitable for use as a dwelling, then it is a dwelling. It is not necessary for the seller to be in occupation on the effective date of the transaction for the building to be used as a dwelling. The buyer’s proposed future use of the building does not, of itself, determine the building’s current use or suitability for a different future use.

To determine whether a building is a dwelling or suitable for use as it will be helpful to consider the physical configuration of the building. No single factor will determine whether a property is a dwelling; different factors must be taken into account. Indicative factors include:

• a toilet and washing facilities
• accommodation for both ‘living’ and sleeping
• a kitchen

Other factors include the property’s treatment for the purposes of local government finance or status under planning laws, discussed later in this section.

Where an individual taxpayer acquires:

• residential property with more than one dwelling within its boundary, and
• where one of which is to replace their main residence or where they own no other dwellings,

higher rates may not apply to the transaction if certain conditions around principal and subsidiary dwellings are met.

See our guidance at LTTA/8080 for more information on subsidiary dwellings.

Treatment for purposes of local government finance and status under planning laws

In considering the use (and suitability for use) of a building, it can be helpful to have regard to the building’s treatment for the purposes of local government finance and its status under the planning laws.

A building will often be subject to Council Tax or Non-Domestic Rates (or in some cases both) depending on whether or not the building is being used or is suitable for use for residential or business purposes. The general assumption is that the actual use of a building will follow the permitted use of the building.

For example, if an entire building is being used at the effective date of the transaction as an office, then it is likely that Non-Domestic Rates (NDR) are being paid and the building is permitted to be used as an office. In the event that the building is being used as an accountant’s office but the building can only properly be used for residential purposes, then the building will still be treated as suitable for use as a dwelling, and the residential rates of LTT will apply.

If, in order to convert an office (or change its use) into a dwelling, appropriate permission from the relevant planning authority is required, then the absence of that permission at the effective date of the transaction would be a strong indicator that property is not suitable for use as a dwelling, even if little physical alteration would be required to make it habitable (for example an office located in a converted townhouse). As such the building would be a non-residential property.

That does not necessarily mean that the existence of appropriate permission, at the effective date of the transaction, to use a non-residential property as a dwelling means that the building is suitable for use as a dwelling. It will still be necessary to consider whether the building is physically suitable for use as a dwelling. If significant construction or adaption of the building would be required to make it suitable for use as a dwelling, then that is an indication that the building would not be suitable for use as a dwelling prior to the carrying out of that work. If, on the other hand, a dwelling house is unoccupied and is instead used temporarily by the seller to store goods (stock) for resale, then, assuming no change of use consent is required to continue to use the building as a dwelling in future, then this will be residential property. During the period that the building was being used as a temporary stock room, it is still subject to Council Tax rather than NDR and is only suitable for use as a dwelling.

Planning permission may not be required to home work or run a business from home, provided that the dwelling house remains a private residence first and business second (or in planning terms, provided that a business does not result in a material change of use of a property so that it is no longer a single dwelling house).

Therefore the fact that a business is carried on from a building does not prevent the building from either being used as a dwelling or suitable for use as a dwelling. For example converting a room into an office does not prevent the building from being residential property if the rest of the property is used as a dwelling or the building is suitable for use as a dwelling, because no permission would be required to continue to use the building as a dwelling. The building will be subject to Council Tax rather than NDR given its primary use is as a dwelling.

However, it should be noted that a building will be a dwelling if it is in the process of being constructed or adapted for use as a dwelling (see LTTA/1053).

Bed and breakfasts, guest houses and holiday lettings

Where a building has been used partly for residential purposes and partly for another purpose, its overall suitability for use as a dwelling will be influenced by the primary use to which the property may be put.

For example a building in use as a bed and breakfast or guest house will be a residential, mixed, or non-residential land transaction based on the facts in each case. The current use of the building, taking into consideration the planning permission requirements if there was to be a change of use to a dwelling, as well as whether the property is subject to Council Tax and/or NDR will be a strong indicator in these types of cases as to the suitable use of the property acquired. Therefore:

• if Non-Domestic Rates are payable and the rest of the property cannot or should not be used for domestic purposes, then the property is likely be considered to be non-residential
• if non-domestic rates and council tax are payable on the respective business and residential parts of the house, and permission would be required to convert the entire house into a dwelling house, then the property is likely to be considered to be of mixed use and the non-residential rates will apply
• if only council tax is paid, perhaps because the provision of bed and breakfast accommodation is secondary to the primary residential use (as would also potentially be the case of a home office) and the house should only be used as a dwelling house, then the property is likely to be considered to be suitable for use as a dwelling and will be residential property.

A property used as part of a furnished holiday letting business will be a residential property whether the property is assessed to Council Tax or NDR, as in most cases the building could be used as a single dwelling house without permission from the relevant local authority.

Specific cases

The legislation identifies certain properties that are to be treated as a dwelling and certain properties which are not to be treated as a dwelling (see the definition of non-residential property below).

Those which are treated as dwellings for LTT purposes are:

• residential accommodation for school pupils
• residential accommodation for students (other than halls of residence for students in further or higher education)
• residential accommodation for members of the armed forces
• an institution that is the sole or main residence of at least 90 per cent of its residents (and does not fall within any of the descriptions below of buildings not treated as dwellings below)

It should be noted that a dwelling acquired with the intention of letting to students is not residential accommodation for students (other than halls of residence). There must be some characteristic over and above the intended (or already existing) tenants to make a property one that is residential accommodation for students. The planning permissions for such a property will be important. For example, a block of flats may have a planning restriction that means that they may only be let to students.

A residential property that is no longer habitable as a dwelling, as it is derelict, would not be taxed at the residential rates, on the basis that it is not suitable for use as a dwelling.

A transaction is likely to be taxed at residential rates if at the effective date the dwelling:

• was used as a dwelling previously and permission to use as a dwelling continues to exist
• is only in need of modernisation, renovation or repair; and
• the repair work does not require changing the structural nature of the property

Where a property may be considered derelict

Where the damage to a dwelling is beyond the extent that normal repair work, replacement or modernisation can resolve, the property may not be suitable for use as a dwelling. This depends on the severity of the damage. If on the effective date: 

• the structural integrity of the property is compromised to the extent that without significant repair work it would be deemed to be unsafe to live in; or
• the repair work requires demolishing the existing structure

then the property is likely to be unsuitable for use as a dwelling and taxed at the non-residential rates.

Repairs to the interior of the property are unlikely to fall within this category unless it is in addition to repairing structural defects that are hazardous without repair.

Suitable for use as a dwelling

It is normal for a part or parts of a property to wear out over time and require some replacements. This does not necessarily mean the property isn’t suitable for use as a dwelling. A normal repair as part of the general upkeep of the property would include:

• fitting of kitchen or bathroom facilities
• repairing or replacing windows
• paintwork
• rewiring
• repair work to roof including a re-slate, re-tile or re-thatch
• reconnection to utilities such as fitting of boiler for heating and replacement of piping to access water
• repair work or replacement of supporting timbers
• repair work as a result of water or fire damage

Removal of fixtures and fittings 

Where a dwelling does not contain fixtures and fittings such as a bathroom suite or kitchen facilities before sale it will still be regarded as suitable for use as a dwelling. These are internal fittings and could be fitted relatively quickly and cheaply and are common improvements to a dwelling. Likewise substantial repairs to the windows or the roof would not prevent the building being suitable for use as a dwelling.

How the property is viewed by other authorities

Just because a property is exempt from council tax does not mean it is not suitable for use as a dwelling. It is also important to note that the inability to obtain a mortgage does not influence whether a property is suitable for use as a dwelling or not for LTT purposes.

A prohibition order or an emergency prohibition order made under the Housing Act 2004 may be evidence that a property is not suitable for use as a dwelling, however, this will only be the case where the order requires works in excess of normal repair works, replacement or modernisation.

It is an objective test as to whether a building is in the process of adaption or construction for use as a dwelling at the effective date. Intention alone would not be sufficient. For example, obtaining planning permission for a building would not necessarily change the status of the building, if work on the property in line with the planning permission had not yet commenced at the effective date. However if adaption or construction had taken place at the effective date, then clearly the planning permission would be a strong indicator of what the building is being adapted for use as (for example, is the permission to convert or adapt the building to a dwelling, or into a commercial property?).

Residential properties that are in the process of being constructed may be treated as dwellings at the point when walls begin to be constructed upon the foundations. Those walls do not have to be above ground level. Where walls have started to be built at the effective date the land will be residential property if the building being constructed is to be a dwelling.

Where a building includes a number of dwellings (for example, a block of flats), all the dwellings in the building will be treated as being in the process of being constructed when the walls begin to be constructed, not when construction of each individual dwelling is commenced. This principle applies even if the ground floor is intended for non-residential use (for example, where the building consists of a shop with flats above). This will apply where a single, or multiple dwellings are sold. However, where the incomplete building is one that is for mixed use and the whole of the site is sold in a single transaction then the non-residential rates will apply.

This will mean that a bare piece of land sold to a property developer will be non-residential land. If that developer were to sell the land after commencing the build of the properties, and none or some of the properties have reached the point of amounting to the construction of walls, then the transaction will be either one that is a non-residential, or a mixed, property transaction and will need to be assessed using the non-residential rates of LTT.

Acquisition of 6 or more dwellings

Where all the dwellings being constructed have reached the point where walls are considered to be in the process of being constructed, the transaction will be a residential property transaction and, the taxpayer may make a claim to multiple dwellings relief or opt to have the transaction treated as non-residential in the event that the transaction consists of 6 or more such dwellings.

Where the construction work has resulted in some, but not all, of the dwellings being in the process of being constructed then the taxpayer may claim multiple dwellings relief in relation those dwellings and non-residential rates in relation to the rest of the land.

Off-plan property purchases

Where a taxpayer buys bare land that has:

• planning permission for a dwelling, and
• construction of the dwelling has not begun, and
• the seller is under no obligation to build a dwelling

then the purchase will be taxed at the non-residential rates of LTT.

This is in contrast to where an off- plan purchase that comprises both the land and a contract for the construction of a dwelling. This will be treated as a residential property transaction.

It should be noted that there are special rules for off-plan property acquisitions in relation to whether they are deemed to be an acquisition or holding of a dwelling for the purposes of the higher rates rules (see LTTA/8050 for the higher rates rules and LTTA/7040 for relief for acquisitions involving multiple dwellings)

An acquisition of bare land will generally be a non-residential transaction. Whereas a transaction is likely to be residential if at the effective date the purchased land:

• forms part of the garden or grounds of a dwelling
• is for the benefit of the dwelling

How to determine if land is garden or grounds

It will be a question of fact. In most cases, land attached and acquired with a dwelling will be garden and grounds, making it residential.

However, land does not have to be acquired with a dwelling for it to meet these conditions. Land acquired separately from a dwelling needs to be assessed at the ‘effective date’ to determine if it’s residential or not.

Whether land forms part of the garden of grounds of a dwelling, (including any building or structure on such garden and grounds) or subsists for the benefit of the dwelling will be a question of fact depending on the individual circumstances of each case. For most dwellings, it will be clear what are:

• the gardens or grounds of that dwelling
• those parcels of land that are not

Where there’s some question over this, it will be helpful to consider whether the land has a separate self-standing function or has been used to conduct a business or trade.

Land does not have to be actively in use for it to be classed as either garden and grounds or as non-residential land. Its last use is indicative of its nature.

Farming and rural land

As stated, in most cases, land attached to a dwelling will be treated as garden or grounds. The main exception to this is farmland, which is clearly neither garden nor grounds of a farmhouse.

Farmland is likely to have been exploited by commercial machinery. At the effective date it would be hard to class this land as garden or grounds.

But land not commercially used will be considered gardens, or ‘grounds’.

Tests to help decide if land is not part of garden and grounds

There will be some cases where it’s not as clear whether land:

• forms part of the garden and grounds of a dwelling, or
• is non-residential

The following indicative factors may help to determine whether land has been used to conduct business or trade. If so, it will be non-residential.

These tests should apply to how the seller of the property used the land. Where the seller has permitted another party to access and exploit the land, this party’s use of the land should also be considered against these tests.

1. Has there been an activity undertaken on the land done so earnestly to pursue business interests instead of undertaken for pleasure, enjoyment or convenience?

For example, a working sheep farm producing meat, milk and wool is more likely to meet this test. Whereas, a dwelling with some small fields within its boundary under a grazing agreement is not, unless there is further evidence of commercial exploitation of the land. 

Similarly, a house that’s purchased with land as an investment with the hope of selling that land for a profit later is unlikely to meet this test.

2. Has the activity undertaken on the purchased land been undertaken on sound and recognised business principles?

This means there has been genuine economic or commercial use of land. Examples of recognised business principles include:

• accurate record-keeping
• being VAT-registered (where appropriate)
• having contracts in place for the supply of goods and services

3. Has the activity undertaken on the land had a reasonable prospect of profit and the intention of generating a reasonable income relative to the land value?

For example, a dwelling is acquired with a neighbouring field that the previous owner had used to keep chickens. The previous owner sold both eggs and chicks, from which she gained a reasonable income but ran at a loss. This is unlikely to be viewed as a business undertaking and is likely to make the land residential.

4. Has the activity undertaken on that land been done so with reasonable continuity?

For example, a dwelling purchased with a nearby field used as a campground for only a couple of weeks a year, coinciding with a festival event, is unlikely to be classed as non-residential.

5. How is the land viewed by other public authorities?

For example, land that receives rural payments is more likely to be classed non-residential than land that does not. For this test to be met the rural payment should be paid on the basis of the purchased land alone. Where a small amount of land, which is too small to qualify for a rural payment in its own right, is used by a neighbouring farmer under a grazing agreement. And that land is combined with the neighbouring farmers’ own land to qualify for a rural payment. This is unlikely to meet the test.

Land that’s exempt from Council Tax or Non-Domestic Rates (NDR) as it’s deemed agricultural is more likely to be viewed as non-residential than land that does not have such an exemption.

6. Has the local authority granted planning permission or other permissions or licences indicative of a business use of the land?

For example, a campsite will have:

• planning permission for the construction of toilet and washing facilities
• a licence from the local authority to operate as a campsite

Buildings on the land

Buildings on the land must be included when considering whether a property is residential or mixed/non-residential. If those buildings are in the garden and grounds of the dwelling, then the use or suitable use of those other buildings is not relevant.

Land that subsists for the benefit of a dwelling

Land that subsists, or is to subsist, for the benefit of the dwelling is also taken to be part of the dwelling. This applies to an interest in land which is not attached to the dwelling and its garden or grounds.

However, where the land had ceased to subsist for the benefit of the dwelling at the effective date of the transaction, this will not be a residential transaction.

Rights of way, easements and fencing

The fencing off of a part of a garden or grounds or a public footpath crossing garden and grounds does not change the nature of that land unless the dwelling owners no longer had rights of use or access to it.

The acquisition or removal of rights of way and easements will also be the acquisition of residential land if the right subsists for the benefit of a dwelling. Therefore, payments made to acquire or remove a right of way or easement that benefits a building that’s used or is suitable for use as a dwelling will be liable to the residential rates of LTT.

(section 72)

Non-residential is defined in the negative – it is any land and buildings that is not residential property.

However, the following are confirmed to be the non-residential use of buildings:

• a home or institution providing residential accommodation for children
• a hall of residence for students in further or higher education
• a home or institution providing residential accommodation with personal care for persons in need of personal care by reason of old age, disablement, past or present dependence on alcohol or drugs or past or present mental disorder
• a hospital or hospice
• a prison or similar establishment
• a hotel or similar establishment

Specific inclusion, as non-residential property, of the above buildings provides clarity for the treatment of the buildings for LTT purposes. In the absence of this specific rule the buildings would, potentially, meet the definition of a dwelling.

(section 73)

A dwelling is a residential property that comprises a single dwelling. What constitutes a dwelling is a question of fact, access to private cooking and bathroom facilities will be important in establishing whether a dwelling is a single dwelling. This will mean that a house of multiple occupancy will not be treated as a number of single dwellings if the property lacks private cooking (for example, fitted kitchen) and bathroom facilities for all occupants.

(section 74)

A connected person is, broadly, a person where there is a connection between the taxpayer and that other person:

• for an individual, a familial tie, such as spouses, siblings, ancestors and descendants, and 
• in relation to companies where a company is able to exercise control over another company (or such control can be exercised), or where an individual is able to exercise control over a company. In both cases that control is to be considered both directly and indirectly

The LTT definition of connected persons is dependent upon section 1122 of the Corporation Tax Act 2010.This is a complicated area of UK taxation and as the legislation defining who are connected persons, and the guidance related to it, are based on legislation under the authority of the UK government this guidance provides links to the relevant legislation, and to the relevant HMRC guidance. Please note that the WRA cannot guarantee that the links are correct at the date that they are viewed.

Section 1122 Corporation Tax Act 2010 – connected persons

Section 1123 Corporation Tax Act 2010 – connected persons; supplementary

Section 450 Corporation Tax Act 2010 – Control

Section 451 Corporation Tax Act 2010 – rights to be attributed etc.

Section 448 Corporation Tax Act 2010 – Associate

The following HMRC guidance may be helpful in establishing whether persons are connected to each other or whether one company is under the control of another.

Close companies: tests

(section 75)

For the purposes of LTT, ‘child’ means a person under the age of 18.

(section 75)

For the purposes of LTT:

• the ‘consumer prices index’ means the all item consumer prices index published by the Statistics Board, and
• the ‘retail prices index’ means the United Kingdom General Index of Retail Prices published by the Statistics Board.

(section 75)

For the purposes of LTT ‘enactment’ means:

• an Act or a Measure of the National Assembly for Wales
• an Act of Parliament, and
• subordinate legislation made under an Act or a Measure of the National Assembly for Wales or an Act of Parliament

(section 75)

‘Land’ includes:

• buildings and structures, and
• land covered by water

LTT can only be charged on “land in Wales”.

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.

A caravan, including static caravans and mobile homes, is generally a movable asset. They are generally not considered to be property or land. If the caravan can be moved easily, without damaging the land, it is likely that it would not be subject to LTT.

However, depending on the facts, it may be that LTT would be due in relation to a purchase or lease of the land on which the static caravan sits. If, in buying the static caravan, the taxpayer also enters into a lease of a piece of land, or buys the piece of land, those transactions may be subject to LTT. If the right to use the land for the static caravan is agreed through a licence, it is unlikely that this would be subject to LTT.

These considerations also apply to houseboats. If the boat can be easily removed from its moorings, without damaging the land, it is likely that it would not be subject to LTT. If the boat is permanently attached to the land, potentially through another structure, it may be subject to LTT.

LTT may apply to the mooring agreement, as with static caravans and mobile homes, if the agreement is considered a lease, rather than a licence. If the agreement allows the taxpayer exclusive access to a berth for a term of years, this is likely to be a lease. If the boat can be easily moved to another berth, or if the berth can be accessed without prior notice, this is likely to be a licence.

Further guidance on chargeable interests in LTTA/2010.

(section 75)

For the purposes of LTT ‘registered social landlord’ means a body registered as a social landlord in a register maintained under section 1(1) of the Housing Act 1996.

(section 75)

‘TCMA’ means the Tax Collection and Management (Wales) Act 2016.

(section 75)

‘Wales’ has the meaning given by section 158(1) of the Government of Wales Act 2006.