As the Gavin and Stacey speculation continues in the run-up to this year’s Christmas special, an all-important question remains, who will win the battle over where they will live? Will Stacey remain strong and settle down roots in Wales or will they move across the bridge to England to be closer to Gavin’s parents? Well, wherever they decide, there will be tax implications.
When purchasing a property or land in England or Wales, tax will be payable on the consideration which is the purchase price paid for the property but also includes other sums such as VAT. Since we last saw Gavin and Stacey on our screens, the way tax is dealt with in Wales has changed. Prior to 1 April 2018, both countries would pay Stamp Duty Land Tax, however, this has since been replaced in Wales with Land Transaction Tax (LTT). Both taxes essentially do the same job but the finer details vary as outlined below.
Residential Tax Liability
Residential Property Standard Rates
The current tax rates are as follows:
£0 - £180,000 = 0% £0 - £125,000 = 0%
£180,001 – £250,000 = 3.5% £125,001 – £250,000 = 2%
£250,001 – £400,000 = 5% £250,001 – £925,000 = 5%
£400,001 - £750,000 = 7.5% £925,001 - £1,500,000 = 10%
£750,000 - £1,500,000 = 10% £1,500,000 = 12%
£1,500,000 = 12%
Whilst the rates do not vary drastically, if you are purchasing a property for a consideration that falls within the “lower bands”, purchasing in Wales would be more desirable and if you are purchasing a property for a consideration within the “higher bands”, SDLT rates are preferable.
Higher Property Rates
If you already own or have an interest in another property on the date you complete your purchase, you will have to pay the higher rates.
The current higher rate is 3% above those noted above and is the same under both SDLT and LTT. For example, if you were purchasing a property for £180,000 in Wales and already own another property, you will have to pay tax at a rate of 3% of £180,000.
If you sell the additional property, leaving you with one which is used as your main residence, within 3 years of the date of completion, you may be eligible for a refund.
Please note that whilst the rate may be the same under LTT and SDLT, the refund process may vary.
Leasehold property - new Lease
Perhaps Gavin and Stacey will purchase a leasehold property in which case, LTT or SDLT will still be payable.
LTT is only payable on the premium and this will be charged at the standard or higher rates noted above depending on the circumstances. For example, if you were entering into a new lease with a premium of £200,000 and a yearly rent of £1,000, you would pay 3.5% of £200,000 only.
SDLT is more complicated in this respect. In essence, if the total rent over the lease term is more than £125,000, you will pay 1% on anything above that amount AND if the premium is more than £300,000 you will pay 5% on anything above that amount. As straight forward as this may sound, the basis of the rent calculation is the ‘Net Present Value’ rather than the total rent payable during the lease term. HMRC have a fancy way of calculating the Net Present Value and provide a very helpful calculator.
This means that where the combined premium and rent is low, SDLT is more desirable, however, where this is high, LTT is preferable.
Land tax reliefs
There are a number of reliefs available under both LTT and SDLT which seek to reduce the amount of tax payable. For example, if you are purchasing as a charity, you may be able to claim charities relief which will potentially reduce your tax liability to nil. I am, however, going to focus on ‘first time buyer’s relief’ which is a relief available to someone who has never owned or had an interest in another property.
Under the rules of Land Transaction Tax, there is no “first-time buyer’s relief” available. However, you do not start paying LTT until your purchase price exceeds £180,000 whereas, under the rules of Stamp Duty Land Tax, you start paying SDLT once the purchase price exceeds £125,000.
If you are a first-time buyer in England, the following rates will apply:
£0 - £300,000 = 0%
£300,001 - £500,000 = 5%
£500,001 = you are not eligible for first-time buyer’s relief.
Property purchase tax returns - deadlines
Following completion of your purchase, a tax return will need to be filed with the relevant tax body and the sum paid within a specified period of time or you will face financial penalties. Please note that a tax return may still need to be filed even where there is no tax payable and failure to do so will result in financial penalties irrespective of the fact that no tax was due.
LTT returns must be filed and paid within 30 days of completion (or other effective dates of the transaction)
As of 1 March 2019, SDLT returns must be filed and paid within 14 days of completion (or other effective dates of the transaction).
As you will see the tax-preferred will depend solely on your circumstances. Assuming Gavin and Stacey are first time buyers, it may be more tax efficient to buy in England with the help of ‘first time buyer’s relief’. Perhaps since they last graced our TV screens they have brought a house and now need to upgrade in size… in which case, the lower the consideration, the more tax efficient it may be to purchase in Wales... “do you know what I mean?”
In our next instalment, we consider the tax implications on a commercial basis. Perhaps Dave will take his coach enterprise to a whole new level and require commercial premises to help his expansion. Only time will tell.
If you have any queries in relation to LTT or SDLT for residential transactions, please contact a member of the team who will be happy to assist.