A new Welsh tax? So many questions!

On 10 February 2015, the Welsh Government published proposals for a land transaction tax (LTT) to replace stamp duty land tax (SDLT) in Wales from April 2018.  LTT is the first Welsh tax in over 800 years and will impact a sizeable proportion of the Welsh population. The consultation sets out several ways SDLT could be re-shaped to fit Welsh circumstances and seeks views on 28 wide ranging questions.

Comments are invited by 6 May 2015 on, among other things, the following:

  • Residential property:  The old slab system vs. the marginal rate debate. UK SDLT moved residential property to the marginal rate system following the recent budget. Should the Welsh LTT follow suit and specifically should we also have a 15% "slab" rate for acquisitions by non-natural persons?
  • Non-residential property: How important is it to maintain consistency between the Welsh and UK systems in terms of commercial property? Will a different system in Wales lead to increased complexity and deter foreign investment? And how are properties straddling both jurisdictions to be dealt with?
  • Leases and licences: Should consideration be given to taxing licences and tenancies at will which fall outside the current regime?
  • Reliefs and exemptions: Should the current SDLT reliefs or exemptions be retained, removed or modified. Are any new reliefs warranted?
  • Compliance, avoidance, disputes and penalties:  Is the current system fit for purpose? Should a pre-clearance process be introduced? In particular should the anti -avoidance provisions contained in section 75A of Finance Act 2003 be replicated, notwithstanding their potential to catch innocent transactions? Or would a move to a more motive based test be more equitable?

Practitioners and clients alike will welcome the proposals’ reference to the need for LTT to be supported by clear guidance, for example, in the context of the complex rules on partnerships, trusts and companies and also in the context of compliance, where some grey areas continue to permeate the current regime. The Welsh Government states that, regardless of whether the LTT rules on partnerships, trusts and companies differ from the SDLT rules, developing and publishing clear and comprehensive guidance will be a high priority.

The decisions as to rates and bands will be taken much closer to 2018 to take account of the prevailing fiscal circumstances and indeed the operation of UK SDLT at that time. With the Office of Budgetary Responsibility’s estimate that SDLT could be worth in the region of £231million to the Welsh economy by the devolution of the tax in 2018, drafting this legislation presents a huge challenge for the Welsh Government. In the meantime, all eyes look north as Scotland’s Land and Buildings Transaction Tax takes shape for its implementation in April 2015.

We shall update you in due course on the outcome of the consultation and any lessons emerging from the Scottish experience.