This guidance is available to enable practitioners to understand and advise which tax is applicable for a land transaction from 1 April 2018. It was drafted jointly with HMRC and is also available on their website.
Contents
The Land Transaction Tax and Anti-avoidance of Devolved Taxes (Wales) Act (LTTA) received Royal Assent on 24 May 2017.
References to LTT legislation in this guidance have been provided by the Welsh Government. For further information about these provisions (including LTT rates and bands), go to the Welsh Government website.
Throughout the guidance the date 1 April 2018 is used as the date that LTT came into force in Wales and SDLT stopped applying in Wales (1 April 2018 is a Sunday (Easter Sunday) and 2 April 2018 is a bank holiday (Easter Monday)).
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1. Application of SDLT to Wales
Subject to the transitional rules set out in section 2 below:
1.1
Where:
- the effective date of a land transaction is on or after 1 April 2018; and
- the subject-matter of the transaction consists of interests in land in Wales, or
- to the extent that a cross-border transaction includes interests in land in Wales
then the transaction:
- will not be treated as an acquisition of a chargeable interest by section 43 of the Finance Act 2003 (‘FA 2003’) and so SDLT will not apply, and
- will not be linked for SDLT purposes under section 108 Finance Act 2003 with either:
- a land transaction in Wales to which SDLT does apply, or,
- a land transaction relating to land elsewhere in the UK, and
- will be subject to land transaction tax (LTT) administered by the Welsh Revenue Authority (WRA)
1.2
Where a single transaction with an effective date on or after 1 April 2018 includes the acquisition of land in Wales and land elsewhere in the UK, it is treated as if it were 2 (or more) transactions:
- one relating to land in Wales to be included in a LTT return to the WRA,
- any transaction relating to land in England or Northern Ireland to be included in a SDLT return to HMRC, and
- any transaction relating to land in Scotland to be included in a land and buildings tax (LBTT) return to Revenue Scotland
1.3
In these cases the consideration given for the transaction should be apportioned on a just and reasonable basis (section 9 LTTA and section 48A FA 2003). Further guidance on cross-title and cross-border properties can be found at HMRC.
1.4
When submitting a land transaction return for SDLT you must enter a valid local authority code in each place where this is required. For transactions with an effective date on or after 1 April 2018 this will normally be a code relating to a local authority in England or Northern Ireland. For an LTT return for a transaction with an effective date on or after 1 April 2018 you must provide the Welsh local authority name. If you do not enter a valid code or name, you will not be able to submit an online return. A paper return will be rejected.
1.5
Special codes should be entered on the SDLT return for transactions in Wales covered by the transitional rules set out in paragraph 2 below and in certain other circumstances – see paragraphs 19.2, 21.1 and 21.5 below. See guidance in 1.3 above in relation to cross-title properties and the appropriate codes to use on the SDLT and LTT returns.
2. Transitional provisions (section 16(5) and (6) Wales Act 2014)
2.1
Exceptionally, SDLT will continue to apply to transactions relating to or including land in Wales where the effective date is on or after 1 April 2018, and the transaction is:
- effected in pursuance of a contract entered into and substantially performed on or before 17 December 2014 (the day on which the Wales Act 2014 received the Royal Assent) or,
- effected in pursuance of a contract entered into on or before 17 December 2014 and not excluded by any of the following:
- any variation of the contract, or assignment of rights under the contract, after that date;
- the exercise after that date of any option, right of pre-emption or similar right; or
- an assignment, sub-sale or other transaction relating to the whole or part of the subject-matter of the contract as a result of which a person other than the purchaser under the contract becomes entitled to call for a conveyance
2.2
HMRC will not regard the following as excluding the transaction from a charge to SDLT under the transitional rules:
- a transfer to the nominee or bare trustee of the purchaser under the contract.
- Furthermore, HMRC may not regard the following as excluding the transaction from a charge to SDLT under the transitional rules:
- a variation of the completion date specified in the contract
2.3
Purchasers making an SDLT return for their transaction because of the operation of the transitional rules should enter local authority code 6999, not a Welsh local authority code, where required in the SDLT return (including any supplementary paper returns).
2.4
See also table in paragraph 4 below which sets out the return obligations for taxpayers in a number of scenarios relating to the date the contract was entered in to, the date of substantial performance (if relevant) and the date of any variation to the contract.
3. Land Transaction Tax (LTT)
3.1
The LTTA provides for a tax to be charged on land transactions, to be known as LTT, and makes provision about the key concepts underlying the tax. A land transaction with an effective date on or after 1 April 2018 will be subject to LTT to the extent that it includes interests in land situated in Wales, provided the acquisition of such interests in land is not subject to SDLT under the transitional rules described in parts 1 and 2.
3.2
Guidance regarding the application of LTT is available on this website.
3.3
The Land Transaction Tax (Transitional Provisions) (Wales) Regulations 2018 make provision in relation to certain transactions that began under SDLT but have an effective date on or after 1 April 2018. The intention is to ensure that such transactions are not subject to 2 taxes (SDLT and LTT) but are subject to one of the taxes. The regulations make provision to achieve that purpose for different types of land transactions or arrangements involving land transactions relating to land in Wales.
4. The effect of the transitional provisions for land transactions in Wales
| On or before 17 December 2014 | 17 December 2014 to 31 March 2018 | 1 April 2018 and after | Tax Charge |
|---|---|---|---|
| Exchange of contracts | Completion of the transfer | SDLT on completion | |
| Exchange of contracts and substantial performance | Completion of the transfer | SDLT on substantial performance and SDLT on completion | |
| Exchange of contracts and substantial performance | Variation | Completion of the transfer | SDLT on substantial performance and SDLT on completion |
| Exchange of contracts | Substantial performance | Completion of the transfer | SDLT on substantial performance and SDLT on completion |
| Exchange of contracts | Variation | Completion of the transfer | LTT on completion |
| Exchange of contracts | Substantial performance and variation | Completion of the transfer | SDLT on substantial performance and LTT on completion |
| Exchange of contracts | Substantial performance and completion of the transfer | SDLT on substantial performance and SDLT on completion | |
| Exchange of contracts | Substantial performance and variation and completion of the transfer | SDLT on substantial performance and LTT on completion | |
| Exchange of contracts | Variation and substantial performance and completion of the transfer | LTT on substantial performance and LTT on completion | |
| Exchange of contracts | Completion of the transfer | LTT on completion | |
| Exchange of contracts and substantial performance | Completion of the transfer | SDLT on substantial performance and LTT on completion | |
| Exchange of contracts and substantial performance | Variation and completion of the transfer | SDLT on substantial performance and LTT on completion | |
| Exchange of contracts | Substantial performance and completion of the transfer | LTT on substantial performance and LTT on completion | |
| Exchange of contracts | Substantial performance and variation and completion of the transfer | LTT on substantial performance and LTT on completion |
Notes on the table
4.1
An SDLT or LTT charge on completion following substantial performance applies only to the extent (if any) that the amount of tax chargeable on it is greater than the amount of tax chargeable on the contract which was substantially performed.
4.2
In this table ‘variation’ means a disqualifying event prescribed by section 16(6) Wales Act 2014 and includes an assignment of rights under the contract or the exercise of an option.
4.3
‘Completion of the transfer’ means completion of the land transaction proposed between the parties in substantial conformity with the contract.
5. Linked transactions
Transactions occurring after 1 April 2018 that are subject to Land Transaction Tax cannot be linked to transactions occurring prior to 1 April 2018, which would have been subject to Stamp Duty Land Tax. The following examples highlight such scenarios:
All these examples assume that the transaction in question is notifiable under the relevant legislation.
Specific provisions
Notes
- The following guidance applies to the extent that the land transaction relates to land in Wales. The existing SDLT rules will continue to apply to the extent that the land transaction relates to land in England or Northern Ireland. Where necessary, the consideration for the transaction must be apportioned on a just and reasonable basis.
- In all cases references to:
- a land transaction where the effective date is before 1 April 2018 include a transaction which remains subject to SDLT by virtue of the transitional provisions at section 16(5) and (6) Wales Act 2014; and
- a land transaction where the effective date is on or after that date exclude such a transaction
6. Conveyance to a third party (section 44A FA 2003)
6.1
Section 44A applies where a contract (the first contract) is entered into under which a chargeable interest in land is to be conveyed by one party to the contract (A), at the request of another (B), either to B or to a third person (C) who is not party to the contract.
6.2
If the first contract is substantially performed on or before 17 December 2014 (the day on which the Wales Act received Royal Assent), an obligation referred to at section 44A(6)(b) and a contract between B and C referred to at section 44A(7) will be subject to SDLT, even if the effective date of the transaction concerned is on or after 1 April 2018.
6.3
If the first contract is entered into on or before 17 December 2014 but not substantially performed, an obligation referred to at section 44A(6)(b) and a contract between B and C referred to at section 44A(7) will be subject to SDLT if the effective date of the transaction concerned is on or after 1 April 2018 and none of the exclusions at section 16(6) Wales Act 2014 applies to it. If any of the exclusions do apply then the transaction will be subject to LTT.
6.4
If the first contract is entered into after 17 December 2014, an obligation referred to at section 44A(6)(b) and a contract between B and C referred to at section 44A(7) will not be subject to SDLT if the effective date of the transaction concerned is on or after 1 April 2018. The contract between B and C will be subject to LTT and a return must be made to WRA.
7. Pre-completion transactions (section 45 and Schedule 2A FA 2003)
7.1
Section 45 and Schedule 2A FA 2003 apply where a contract is to be completed by a conveyance but, before it is substantially performed or completed, the purchaser under that contract enters into a further agreement as a result of which another person is entitled to call for the conveyance of all or part of the subject-matter of the original contract. Such an agreement may take the form of an assignment of the rights under the contract or a sub-sale or other free-standing transaction.
7.2
If the assignment or free-standing transaction is completed or substantially performed by the transferee on or after 1 April 2018, neither the completion of the assignment or free-standing transaction, nor a transaction or notional transaction entered into by the transferor, will be subject to SDLT. They will instead be subject to LTT.
7.3
Unless the original contract was substantially performed on or before 17 December 2014, the transitional rules at section 16(5) and (6) Wales Act 2014 will not apply in these circumstances as the assignment of rights or free-standing transaction will exclude the transaction by virtue of section 16(6).
7.4
Schedule 2 to the LTTA Act provides rules relating to pre-completion transactions that will operate in the same manner as those rules currently in force at the date of publication of this guidance for SDLT. Any relief that may apply to the assignment of rights or the sub-sale or other free-standing transaction are to be found at paragraphs 18 and 19 of that schedule.
8. Options (section 46 FA 2003)
8.1
The acquisition of an option binding the grantor to enter into a land transaction (or a right of pre-emption preventing the grantor from entering into, or restricting the right of the grantor to enter into, a land transaction) is treated as a land transaction separate from the exercise of the option or right.
8.2
If an option or right is acquired before 1 April 2018, the exercise of the option or right on or after 1 April 2018 is not subject to SDLT, regardless of whether or not the grant and the exercise are linked. The exercise of the option will be subject to LTT. The land transaction for the grant of the option (subject to SDLT) and the exercise (subject to LTT) will not be linked transactions.
8.3
If an option or right is acquired on or after 1 April 2018, it will be subject to LTT and a return in relation to that land transaction must be made to WRA. The exercise of the option will also be subject to LTT and a return must be made to WRA. The acquisition of the option or right and the exercise of the option are separate land transactions. However, they may be linked transactions for LTT purposes.
9. Exchanges (section 47 FA 2003)
9.1
For SDLT purposes an exchange is treated as 2 separate transactions, each wholly or partly in consideration of the other. Where any of the interests transferred is a major interest in land, the chargeable consideration for each transaction is the market value of the interest acquired (paragraph 5 Schedule 4 FA 2003).
9.2
The exchanges rules in section 47 FA 2003 only apply where both transactions are subject to SDLT. Where, on or after 1 April 2018, land in England or Northern Ireland is exchanged for land in Wales, only the acquisition of the land in England or Northern Ireland is subject to SDLT and (as the acquisition of the land in Wales is not a land transaction for SDLT purposes) the exchanges rules contained in section 47 FA 2003 will not apply to the transaction.
9.3
The same principles apply where the transfer of land in England or Northern Ireland takes place before 1 April 2018 and the transfer of the land in Wales takes place on or after 1 April 2018.
9.4
In these cases the chargeable consideration for the transfer of land in England or Northern Ireland will be determined according to the rules for the valuation of non-monetary consideration etc., not the exchange rules at paragraph 5 of Schedule 4. The chargeable consideration is likely to be the market value of the interest disposed of, plus, where relevant, any equity payment or other consideration given.
9.5
Where, on or after 1 April 2018, land in England or Northern Ireland is exchanged for land in Wales, the acquisition of the land in Wales will be chargeable to LTT and, if the transaction is a notifiable transaction, a return must be made to WRA. For the purposes of the Welsh land transaction, the LTTA applies and it is likely that the chargeable consideration will be based on the market value of the property being disposed of in England or Northern Ireland, in addition to any other consideration given.
9.6
If both sides of the exchange involve land in Wales, and the first part of the exchange is prior to 1 April 2018 and the second part is on or after 1 April 2018, then the first part will be subject to SDLT and a return must be made to HMRC. The second part will be subject to LTT and a return must be made to WRA. For both parts of the ‘exchange’, the rules that will apply for determining the chargeable consideration for SDLT and LTT purposes will be those in Schedule 4 of FA 2003 and Schedule 4 in LTTA Act 2017 (excluding paragraph 5 of Schedule 4 to the FA 2003 and paragraph 5 of Schedule 4 to the LTTA Act 2017).
9.7
If an exchange takes place on or after 1 April 2018 and the land involved in both parts of the exchange is in Wales, then the exchange rules in paragraph. 5 of Schedule 4 to the LTTA Act apply and returns must be made to WRA (It should be noted that the exchange rules in the LTTA differ from those in Finance Act 2003).
9.8
Where the transfer of land in Wales takes place before 1 April 2018 and the transfer of the land in England or Northern Ireland takes place on or after 1 April 2018, both transactions will be subject to SDLT and the exchanges rules in section 47 and paragraph 5 of Schedule 4 to the FA 2003 will apply. This is because the 2 transactions are still both land transactions for the purposes of FA 2003.
10. Contingent, uncertain or unascertained consideration (section 51 FA 2003)
10.1
The provisions for contingent, uncertain or unascertained consideration, including the provisions for adjustment where a contingency ceases or consideration is ascertained (section 80 FA 2003) and applications to defer payment (section 90 FA 2003) remain unchanged for transactions in Wales which are subject to SDLT. This means that additional payments of SDLT may be due to HMRC on or after 1 April 2018 where a contingency ceases or consideration is ascertained.
10.2
For land transactions that are subject to LTT, the provisions for contingent, uncertain or unascertained consideration, including where a contingency ceases or consideration is ascertained, are contained in sections 18, 19, 20, 47 and 48 of the LTTA. It is also possible to apply to WRA to defer payment under the rules contained in sections 58 to 63 of the LTTA.
11. Sale and leaseback arrangements (section 57A FA 2003)
11.1
Subject to conditions, the leaseback element of a sale and leaseback arrangement is exempt from charge to SDLT.
11.2
Where a sale of land in Wales takes place before 1 April 2018 and the leaseback takes place on or after 1 April 2018, the sale element will be subject to SDLT but the leaseback will not. The chargeable consideration for the sale element will be the market value of the leaseback and any other consideration given for the sale in money or money’s worth. Schedule 9 to the LTTA Act makes sale and leaseback relief available under LTT, so any leaseback on or after 1 April 2018 will be relieved from LTT despite the fact that the sale took place prior to 1 April 2018.
12. Multiple dwellings relief (section 58D / Schedule 6B FA 2003)
12.1
Where a transaction (or linked transactions) includes interests in multiple dwellings situated in:
a) England and Northern Ireland, and
b) elsewhere in the UK
multiple dwellings relief (‘MDR’) is calculated based on the consideration given and the number of dwellings which are subject to SDLT.
13. Group relief, reconstruction and acquisition reliefs (section 62 / Schedule 7 FA 2003)
13.1
Where group relief, reconstruction relief or acquisition relief are claimed in respect of an SDLT transaction which has an effective date before 1 April 2018 and includes an interest or interests in land in Wales, the relevant provisions for withdrawal of relief in Schedule 7 FA 2003 will apply even where the event giving rise to the withdrawal takes place on or after 1 April 2018. In this case a further return must be submitted by letter to Birmingham Stamp Office in accordance with SDLTM50400 and any payment of SDLT made to HMRC.
Group relief is available under LTT and is provided for in Schedule 16 to the LTTA. Reconstruction and acquisition reliefs are also available under LTT, and are provided for in Schedule 17 to the LTTA. Both LTT reliefs operate in a similar manner to the SDLT reliefs.
14. Charities relief (section 68 / Schedule 8 FA 2003)
14.1
Where charities relief is claimed in respect of an SDLT transaction which has an effective date before 1 April 2018 and includes an interest or interests in land in Wales, the relevant provisions for withdrawal of relief in Schedule 8 FA 2003 will apply even where the event giving rise to the withdrawal takes place on or after 1 April 2018. In this case a further return must be submitted by letter to Birmingham Stamp Office in accordance with SDLTM50400 and any payment of SDLT made to HMRC.
Charities relief is available under LTT and is provided for in Schedule 18 to the LTTA which operates in a similar way to the SDLT relief.
15. Relief for first-time buyers (section 57B and Schedule 6ZA FA2003)
There is no first-time buyers' relief in Wales.
16. Higher rate for additional properties (Schedule 4ZA 2003) and higher rates residential property transactions (Schedule 5 LTTA 2017)
16.1
A purchaser who already owns a dwelling in Wales, Scotland or elsewhere may be subject to the higher rates. For further details see [link].
The higher rates of SDLT do not apply where a purchaser is replacing their main residence (paragraph 3(5) and (7)). The higher rates apply where the ‘new’ main residence is purchased before the ‘old’ one is sold, although the higher rates element may be reclaimed if the `old` main residence is sold within 3 years of the purchase of the `new` main residence.
Where a ‘new’ main residence is subject to the higher rates of SDLT and the subsequent sale of an ‘old’ main residence in Wales takes place on or after 1 April 2018, the higher rates element can still be reclaimed from HMRC provided it is sold within 3 years of the purchase of the new one.
16.2
Paragraphs 8 and 17 of Schedule 5 to the LTTA provide that a transaction is not a higher rates residential property transaction where the dwelling acquired is intended to be a replacement for the buyer’s only or main residence and certain conditions are met.
16.3
One of those conditions requires the main residence to be replaced within 3 years of the buyer disposing of his or her original main residence. However, regulation 12 provides for a transitional rule where the transaction giving effect to the replacement of the main residence has an effective date which is 26 November 2018 or earlier.
16.4
In these cases, Regulation 12 makes certain modifications to the rules prescribed by paragraphs 8 and 17. The effect of these modifications is to disapply the 3 year window during which a previous main residence had to be sold before the purchase of a new main residence. In these transactions (and subject to the other conditions being met), the replacement of main residence exception will apply, and the transaction will be chargeable at the main rates of LTT and not the rates that apply to higher rates residential property transactions.
17. Shared ownership leases (section 70/Schedule 9 FA 2003)
17.1
Where the grant of a shared ownership lease was an SDLT transaction (and a market value election has not been made), any staircasing transaction following in which the lessee’s total share in the dwelling does not exceed 80% is exempt from charge to SDLT and will be relieved from LTT on a claim. If the transaction is not notifiable, perhaps because the increased share cost less than £40,000, no return and claim to relief is required.
17.2
Where the grant of a shared ownership lease is was an SDLT transaction in Wales (i.e. before 1 April 2018), any staircasing which takes the lessee’s total share of the dwelling over 80%, or the acquisition of the reversion, will be subject to LTT. This is the case even if a purchase under such an arrangement commenced when SDLT was in force.
18. Alternative property finance (sections 71A and 73 FA 2003)
18.1
Sections 71of FA2003 provide for relief where a purchase is funded by an alternative property finance arrangement, ensuring that the SDLT payable on such a transaction is in line with that payable on a purchase financed with an interest bearing mortgage
18.2
Alternative property finance relief is also available under LTT and is provided for in Schedule 10 to the LTTA. To ensure that a party entering into a land transaction under an alternative property finance arrangement prior to 1 April 2018 is not disadvantaged by the transition to LTT in Wales, regulation 5 of The Land Transaction Tax (Transitional Provisions) (Wales) Regulations 2018 provides that the third transaction described in section 71A FA 2003 will not be subject to LTT.
18.3
For example, if the first transaction occurs under SDLT, that is before 1 April 2018, and meets the conditions for SDLT relief to be claimed then where the subsequent transactions that are part of that alternative finance arrangement, occur after on or after 1 April 2018, they will be eligible for relief under the LTT rules and returns must be made to WRA.
19. Alternative Finance Investment Bonds (section 73C FA 2003 and Schedule 61 Finance Act 2009)
19.1
A land transaction relating to land in Wales which is a ’first transaction’ for the purposes of paragraph 6 of Schedule 61 FA 2009, will be exempt from charge to SDLT if the effective date of the transaction is before 1 April 2018 and the conditions for relief are met. In this case SDLT will become chargeable under paragraph 7(3) of Schedule 61 if relief is withdrawn at any time, even if this withdrawal occurs on or after 1 April 2018.
19.2
A land transaction relating to land in Wales which is a ‘second transaction’ for the purposes of paragraph 8 of Schedule 61 will be exempt from charge to SDLT if the effective date of the transaction is before 1 April 2018 and conditions in that paragraph are met.
19.3
In either case, the transaction will not be subject to SDLT if the effective date is on or after 1 April 2018.
19.4
Relief for alternative finance investment bonds is also available under LTT and is provided for in Schedule 11 to the LTTA. To ensure that a party entering into a land transaction in connection with an alternative finance investment bond prior to 1 April 2018 is not disadvantaged by the transition from SDLT to LTT in Wales, regulation 6 of The Land Transaction Tax (Transitional Provisions) (Wales) Regulations 2018 provides that the second transaction for the purposes of paragraph 8 of Schedule 61 FA 2009 will not be chargeable to LTT when the conditions in paragraph 8(1)(a) and (b) of Schedule 61 FA 2009 have been met.
20. Anti-avoidance (section 75A FA 2003)
20.1
The provisions of section 75A apply to a disposal and acquisition of a chargeable interest in land in Wales where the effective date of the notional transaction (section 75(6)) is before 1 April 2018.
20.2
As well as a general anti-avoidance rule (‘GAAR’) introduced into the Tax Collection and Management (Wales) Act 2016 by the LTTA, section 31 of the LTTA Act contains a targeted anti-avoidance rule (‘the reliefs TAAR’) which prohibits a claim for relief from LTT where the transaction is, or forms part of, a tax avoidance arrangement. Guidance on both these rules is available from the WRA website (www.WRA).
21. Later linked transactions (section 81A FA 2003)
21.1
Where:
- a land transaction relating to land in Wales has an effective date before 1 April 2018, but is not notifiable for SDLT purposes; and
- the transaction becomes notifiable on or after 1 April 2018 by reason of a later SDLT transaction which is linked to it;
the earlier transaction remains subject to SDLT and a return must be submitted in accordance with section 81A FA 2003.
21.3
In these circumstances a paper return (SDLT1) must be submitted to Birmingham Stamp Taxes with a covering letter – see SDLTM50350 paragraph 3. The effective date entered at Box 4 must be the effective date of the later linked transaction. In this case the special LA code 6998 (not a Welsh LA code) must be entered in the return.
21.4
If the earlier transaction has been notified but tax or more tax becomes due as a result of the later linked transaction, then a further return must be submitted by letter to Birmingham Stamp Taxes in accordance with SDLTM50350 paragraphs 1 and 2.
22. Partnerships (section 104 and Schedule 15 FA 2003)
22.1
A transfer of a partnership interest which falls to be treated as a land transaction by virtue of paragraph 17 of Schedule 15 FA 2003 will not be subject to SDLT, to the extent that the transfer of land to the partnership referred to in that paragraph includes land in Wales and the effective date of the later deemed land transaction is on or after 1 April 2018. This applies even if the transfer of land to the partnership took place before that date.
22.2
Regulation 7 of The Land Transaction Tax (Transitional Provisions) (Wales) Regulations 2018 provides that any partnership transfer under paragraph 17(1) of Schedule 15 FA 2003 that takes place on or after 1 April 2018 will be chargeable to LTT.
22.3
A ‘qualifying event’ (e.g. a withdrawal of money from the partnership) which falls to be treated as a land transaction by virtue of paragraph 17A of Schedule 15 FA 2003 will not be subject to SDLT, to the extent that the transfer of land to the partnership referred to in that paragraph includes land in Wales, where the effective date of the later deemed transaction is on or after 1 April 2018. This applies even if the transfer of land to the partnership took place before that date.
22.4
Regulation 8 of The Land Transaction Tax (Transitional Provisions) (Wales) Regulations 2018 provides that a qualifying event referred to in paragraph 17A(2) of Schedule 15 FA 2003 that takes place on or after 1 April 2018 will be chargeable to LTT.
23. Leases (section 120 and Schedule 17A FA 2003)
23.1
Leases that continue after a fixed term (paragraph 3 of Schedule 17A FA 2003)
Paragraph 3 provides that, where a lease continues after a fixed term, it is treated as a lease for the fixed term plus one year (and so on). Where, as a result tax, or more tax, becomes due a return or further return must be submitted within 30 days of the end of the one-year period concerned (see paragraph 3(4)).
Where a lease of land in Wales is granted before 1 April 2018 and in accordance with this provision tax, or more tax, becomes due on or after that date, the lease remains subject to SDLT.
If as a result the grant of the lease becomes notifiable for the first time, a return must be submitted in the usual way – see SDLTM12050 paragraph 1. The last day of the one year period giving rise to the notification requirement (not the date on which the lease was granted) must be entered at Box 4. In this case the special LA code 6998 (not a Welsh LA code) must be entered in the return.
If the grant of the lease has already been notified and additional tax becomes due, notification should be made by letter to Birmingham Stamp Taxes – see SDLTM 12050 paragraph 2.
23.2
Leases for an indefinite term (paragraph 4 of Schedule 17A FA 2003)
A lease for an indefinite term (e.g. a lease for life – see SDLTM18715) is treated in the first instance as if it were a lease for a fixed term of a year. If the lease continues after the end of that term it is treated as a lease for a fixed term of 2 years, and so on.
A lease for an indefinite period of land in Wales which is granted before 1 April 2018 will continue to be subject to SDLT even if it continues after the end of such a term on or after 1 April 2018.
23.3
Successive linked leases (paragraph 5 of Schedule 17A FA 2003)
The provisions of paragraph 5 do not apply in respect of a successive lease of land in Wales granted on or after 1 April 2018, because in this case the successive lease granted is not subject to SDLT and cannot be linked with any transaction which has an effective date before 1 April 2018. Where a lease is granted with an effective date on or after 1 April 2018, it will be chargeable to LTT under Schedule 6 to the LTTA.
23.4
Adjustment where rent ceases to be uncertain (paragraph 8 of Schedule 17A FA 2003)
Where a lease of land in Wales is granted before 1 April 2018 and, in accordance with this provision, tax, or more tax, becomes due on or after that date, the lease remains subject to SDLT. If the transaction is a notifiable transaction, a return or further return must be submitted within 30 days of the end of the 5th year of the period of the lease or, if earlier, the date on which the amount of rent payable in the first 5 years ceases to be uncertain (see paragraph 8(4)).
If the lease becomes notifiable for the first time, a return must be submitted in the usual way. The date prescribed by paragraph 8(1) (not the date on which the lease was granted) must be entered at Box 4. In this case the special LA code 6998 (not a Welsh LA code) must be entered in the return.
If the grant of the lease has already been notified and additional tax becomes due, notification should be made by letter to Birmingham Stamp Taxes – see SDLTM 18525.
23.5
Overlap relief (paragraph 9 of Schedule 17A FA 2003)
Where a lease of land in Wales granted before 1 April 2018 is surrendered or terminated and a new lease granted in its place on or after that date, the new lease will not be subject to SDLT.
The new lease will be chargeable to LTT under Schedule 6 to the LTTA. Paragraph 7 of Schedule 6 LTTA makes provision to discount the LTT chargeable when a new lease has been granted in place of an old lease in any of the circumstances set out in paragraph 7(1) of Schedule 6. To ensure that a party that is entering into a new lease when the old lease had an effective date prior to 1 April 2018 is not disadvantaged by the switch from SDLT to LTT, regulation 9 of The Land Transaction Tax (Transitional Provisions) (Wales) Regulations 2018 provides that where an old lease is granted prior to 1 April 2018, the chargeable consideration for the new lease will be discounted to reflect the rent that would have been payable under the old lease (but not to a negative amount).
23.6
Backdated leases granted to tenant holding over (paragraph 9A of Schedule 17A FA 2003)
The grant of a lease of land in Wales where the effective date is on or after 1 April 2018 will not be subject to SDLT even where the term of the lease is expressed to begin before 1 April 2018.
The grant of a new lease of land in Wales where the effective date is on or after 1 April 2018 will be subject to LTT under Schedule 6 to the LTTA.
23.7
Assignment of lease on or after 1 April 2018 where lease was granted prior to 1 April 2018
Where a lease of land in Wales is entered into prior to 1 April 2018, and is assigned on or after 1 April 2018, the assignment may be subject to LTT if there is a premium or consideration other than rent paid for the assignment.
23.8
Assignment of lease treated as grant of lease (paragraph 11 of Schedule 17A FA 2003)
Where a lease of land in Wales is granted before 1 April 2018, an assignment of the lease on or after that date will not be subject to SDLT and the provisions of paragraph 11 will not apply to treat that assignment as a grant of a lease.
Regulation 10 of The Land Transaction Tax (Transitional Provisions) (Wales) Regulations 2018 provides that where a lease was granted prior to 1 April 2018 and it was relieved or exempt from SDLT, it will be treated as the grant of a new lease for LTT purposes.
23.9
Variations of leases - Increases of rent treated as grant of new lease (paragraph 13 of Schedule 17A FA 2003); Increase in the term of a lease or the extension of premises treated as the grant of a new lease.
A variation of a lease of land in Wales which falls within the terms of paragraph 13 will not be treated as the grant of a lease for SDLT purposes where the effective date of such a grant would be on or after 1 April 2018.
Regulation 11 of The Land Transaction Tax (Transitional Provisions) (Wales) Regulations 2018 provides that a variation of a lease of land in Wales involving an increase of rent which takes place on or after 1 April 2018 will be treated as the grant of a new lease for LTT purposes.
The regulation therefore makes it clear that such an event is to be treated for the purpose of LTT as the grant of a new lease and therefore chargeable to LTT and not to SDLT. However, because SDLT will have already been charged on the rent to that date of the grant of the new lease, LTT is charged only on any increase in rent.