From April 2018, Land Transaction Tax (LTT) will replace UK Stamp Duty Land Tax (SDLT) in Wales. A number of suggestions by CIOT to make it work in practice have been included in recommendations in a Welsh Finance Committee report.
The fact that LTT will contain many of the features of SDLT will be helpful to taxpayers and financial practitioners alike when they determine how transactions are to be managed. It is an acknowledgement that property law and the registration system is the same in Wales and England . It also shows a Committee keen to provide stability and reassurance to businesses and the property market in the transition stage and beyond.
We welcome the Committee’s insistence that a table outlining the differences between LTT and SDLT should be included in guidance on the new tax, not least to prevent traps for businesses operating across borders.
It is also to be welcomed that the Welsh Government has been told to monitor ‘carefully’ the impact of all reliefs, particularly multiple dwellings relief, so that amendments can be made to address any ‘perverse incentives’ which cause unintended behavioural changes. An example is whether multiple dwelling relief will lead to more people buying portfolios of properties that may, in all the circumstances, not be what is desired. Another example is whether the lack of a charge on the rental element of residential leases will lead to more transactions being structured to take advantage of it.
The Committee is open to our suggestion that a statement of policy intent for each of the reliefs, including new ones recommended by the Committee itself, be included in detail somewhere in the explanatory notes to the Bill.
Two tax transactions, two tax returns, two lots of valuation, two possible sets of enquiries – which will complicate people’s tax liabilities at a time when there is a push for a simplification of taxation from tax bodies such as ours.
It is inevitable that changes will need to be made to the legislation in the course of time - tax systems need to be flexible to ensure that they meet the needs of society.
Problems remain: there is a lengthy, porous border between Wales and England with a likelihood that many transactions will involve purchasers and advisors on either side of the border. We are concerned that those who will have to deal with properties in practice such as lawyers will not know where the border is because it is not usually shown on the title plans. There is then the very practical point that where the land being transferred straddles the border then, potentially, even though there is only one land transaction in property law and one title registration at the Land Registry, there will be two transactions for tax – one in England and the other in Wales: two tax transactions, two tax returns, two lots of valuation, two possible sets of enquiries – which will complicate people’s tax liabilities at a time when there is a push for a simplification of taxation from tax bodies such as ours.
The Welsh Revenue Authority (WRA) is in the early stages of being set-up and the process of appointing senior people is underway. There is a lot to be done to ensure that systems are in place and have been thoroughly tested before LTT is launched.
Two significant differences between the proposed LTT and the existing SDLT relate to anti-avoidance. As with Scotland, Wales has decided to go down the route of introducing a general anti-avoidance rule in relation to devolved taxes to complement the general anti-abuse rule that applies to non-devolved taxes. Furthermore, LTT contains a targeted anti-avoidance rule aimed at countering any abuse of the various reliefs to be available. To work, both of these provisions must be clear in their scope and is essential that the WRA has the resources to adequately monitor unusual transactions and structures. It will be just as important that the supporting guidance enables taxpayers and advisers to be clear as to what is and what is not within the potential scope of these rules.
Perhaps the best outcome of the report is the call for a clear framework to ensure that there is an ongoing engagement between the WRA, taxpayers and tax advisers as a failure to do so will inevitably lead to an increase in disputes and the potential for a rise in non-compliance.
By Brian Slater, Chairman of the Chartered Institute of Taxation’s (CIOT) Property Taxes Sub-committee and Hamant Verma, External Relations Officer at CIOT.