Land Transaction Tax: Higher Rates for Purchases of Additional Residential properties - CIOT comments
Land Transaction Tax (LTT) will replace the UK Stamp Duty Land Tax (SDLT) in Wales from April 2018. The Welsh Government consulted widely on the policy design of LTT. Since consulting on proposals for LTT, changes have been introduced to SDLT and Land and Building Transaction Tax (LBTT), in particular, the higher rates charged on purchases of additional residential properties introduced by the UK and Scottish Governments from 1st April this year.
The Welsh Government’s Treasury Paper 5 sought views on the Welsh policy approach to the higher rates for LTT purposes.
The CIOT responded jointly with the Stamp Taxes Practitioners Group to this consultation stressing the need for a clear understanding of the policy objective in introducing the higher rates for LTT. It was pointed out that it is not entirely clear from the policy statements quoted in the document whether the policy intent is to deter the purchase of additional residential properties (so that in fact lower revenue attributable to higher rates in Wales would represent a fulfilment of the policy) or to raise revenue which may be applied to building good quality, affordable housing.
The need for a clear understanding of the policy objective underpins not only the practical application of the higher rates ( in terms of interpretation by taxpayers and their advisers and guidance issued by the WRA) but also the approach taken in framing the proposed overarching general anti-avoidance rule (GAAR) in the Land Transaction Tax and Anti-Avoidance of Devolved Taxes (Wales) Bill, published in July [link http://gov.wales/funding/fiscal-reform/welsh-taxes/land-transaction-tax/?lang=en] as a work in progress draft. . The Bill provides that the GAAR will apply where a person enters into an ‘artificial tax avoidance arrangement’. In determining whether an arrangement is artificial, regard may be had to whether the arrangements result in a tax charge that it is reasonable to assume was not the anticipated result when the relevant provision of Welsh tax legislation was enacted. In order to decide (objectively) what is not the anticipated result, it is necessary to be clear on the intent behind the legislation when enacted.
The response underlined the fundamental importance of clear guidance if the higher rates are adopted in Wales as their adoption will impose greater complexity on the LTT regime for all users albeit that the higher rates will have been in operation in Wales for two years by April 2018. An indication of the complexity is the very high levels of queries that we understand are being received by HMRC from members of the public.
The burden of administering the complexities of the higher rates will fall largely on conveyancers who may not have tax expertise.
Similarly the Welsh Revenue Authority will need to carry out compliance checks to ensure a high degree of compliance in respect of a relatively high volume of transactions often in circumstances where the mechanisms to check information is not linked to a transaction or to an obvious information source. For example, the exact ownership (and nature of that ownership) of overseas property, establishing an intent to occupy the replacement property as a main residence as at the effective date, checking the eligibility for a refund upon the sale of a previous main residence and establishing that a residence is a main residence.
The CIOT has been invited to give evidence to the Finance Committee of the Welsh Assembly in October.