On April 1, 2018, there will be significant changes to the tax system for house purchases in Wales.
A new Land Transaction Tax will replace Stamp Duty Land Tax.
The new tax will be payable when anyone buys or leases a building, depending on its value.
The aim is to modify and simplify the tax system, making it more relevant to Wales and making it fairer.
A series of bandings will make it a progressive tax. The higher the value of the property being bought, the higher the rate of tax to be paid.
The bandings also mean that the average first-time buyer will pay nothing in land tax.
For people buying a home up to £400,000 in value, all will pay the same or less than the current stamp duty tax.
Nine out of ten house buyers in Wales will pay the same or less under the new system.
Second home buyers will continue to face a higher land tax rate – at an extra 3% on top of the banding for the value of the home they are buying, the same as under the current stamp duty system.
For business premises, Wales will have the lowest starting rate of tax for purchases in Britain.
“From April, Wales will introduce the first Welsh taxes in almost 800 years, supporting first-time buyers and boosting business,” said the Welsh Finance Secretary, Mark Drakeford.
“The devolution of tax powers provides us with the opportunity to reshape and make changes to improve existing taxes to better meet Wales’ needs and priorities. I have always been clear that we will use these powers to help improve fairness and support jobs and economic growth in Wales…We are being bold but balanced and leading the way in creating a fair and progressive tax system.”
Fortis Properties Managing Director Damon Ormonde says: “The changes are likely to encourage first-time buyers into the marketplace, which is a positive move.
“The fact that Welsh land taxes for homes worth under £400,000 are less than for those in England, coupled with the planned scrapping of the Severn Crossings tolls, may also help encourage more people to widen their property search over the Welsh border and into Newport and Cardiff.
“However, the impact at the higher end of the market should be monitored.”
The residential land tax bandings:
Up to £150,000 – 0%
£150,000 to £250,000 – 2.5%
£250,000 to £400,000 – 5%
£400,000 to £750,000 – 7.5%
£750,000 to £1.5m – 10%
Above £1.5m – 12%
Up to £150,000 – 0%
£150,000 to £2m – 1%
Above £2m – 2%
The new system means the rate for non-residential leases will apply from a lower net present value threshold.
When it comes to freehold purchases and transactions with lease premiums, it is being forecast that 60% of taxable transactions will pay no tax.
How does this compare with England?
The clear winners are first-time buyers and those buying smaller homes – for example, downsizers.
Anyone buying a home worth under £150,000 will be £500 better off than those buying in England.
For anyone buying a £200,000 house, they will also pay £250 less than those buying a house worth the same in England.
For anyone buying a home worth up to £400,000, the tax is the same as in England.
Above £400,000, buyers start to pay more than their English counterparts.
For a £500,000 house, the difference is £2,500 more than in England.
For houses worth more than £750,000, the difference becomes more marked. A buyer of a £925,000 home in Wales will pay £17,500 more than a buyer in England.
Buying a new home in Cardiff after April 1, 2018? It’s vital you factor these tax bandings into your costs, especially if the property is worth more than £400,000. Get advice on the latest moves in the property market in Cardiff from our experts. Call us today on 02920 561111.