Tax-free threshold for Land Transaction Tax increases for house purchases in Wales
It was announced this week that the tax-free threshold for Land Transaction Tax (“LTT”) will increase from £180,000 to £250,000 for house purchases in Wales from 27 July 2020 until 31 March 2021.
The exemption only applies to properties purchased by individuals as main residence on main residential rates. If you already own a property and you are purchasing either a second home; on a buy-to-let basis; or through a company, you will pay the standard ‘additional rates’ which charge 3% on the first £180,000.
Before initiating this temporary measure, the tax free threshold on main residences was £180,000 so this move effectively serves to increase the tax free threshold by £70,000.00.
The current rate scale can be compared by the following table:
Portion of price
Up to £180,000
£180,000 to £250,000
£250,000 to £400,000
£400,000 to £750,000
£750,000 to £1.5m
The move comes following the UK government’s decision not to charge Stamp Duty Land Tax (the equivalent land tax for transactions in England and Northern Ireland) on property prices up to £500,000 from the 8 July 2020 until 31 March 2021.This means that from 27th July, this could save buyers up to £2,450 in LTT that would have otherwise needed to have been paid on completion.
Although the tax-free threshold in Wales is smaller than the tax-free threshold in England and Northern Ireland, average house prices in Wales are considerably less than the rest of the UK meaning that 80% of house sales where main residential rates apply will be exempt.
The average price of a property in Wales is £161,719 therefore the effective increase in the tax-free threshold will serve to benefit a huge proportion of house hunters.
This will most likely serve to proportionately benefit first-time buyers who are eligible for the Help to Buy – Wales scheme. This is where eligible participants can apply for up to a 40% equity loan on a property purchase price. Due to the subsidies granted by Help to Buy, ‘new-build’ dwellings typically cost beyond the original tax-free threshold of £180,000. It is positive that these step have been taken to lessen the bill of purchasing your own home.
The amount of high quality new build developments across the country and in our city centres serve as an affordable means of helping new buyers ‘getting a foot onto the ladder’ and their importance both socially and economically cannot be overstated.
The Welsh Government have explained their reason for emulating the UK government’s cutting of the threshold as a means to re-ignite the real estate sector in Wales but also to provide help and confidence to those affected by the economic challenges presented by the pandemic.
Contemporaneously, the Welsh Government have announced a £30m stimulus package for the housebuilding sector. The exact details of investment is still to be confirmed, however the Finance Minister for Wales, Rebecca Evans, stated that it will be used to support the construction of increasing energy efficient social housing stock and securing jobs in the industry.
It is hoped that these measures serve to aid the economic recovery in Wales by supporting a vital sector in our economy.
What does this mean for house buyers in practice? Providing that you are not time limited in your purchase (e.g. subject to a mortgage offer expiry or you have already exchanged with a fixed date prior to 27 July 2020) it is as simple as looking to delay completion until at least 27 July 2020 in order to benefit from the rate change.
Ince offers a range of real estate services from our Cardiff office. For more information and advice, contact Paul Simon on 02920 557231 or email PaulSimon@incegd.com.