Michael Draper outlines some of the unique law – both existing and on the horizon – in Wales, as it relates to property, including potential new developments around vacant sites and residential lettings
On 1 April 2018, a new reserved model of devolution in Wales came into force – as opposed to the previous, conferred powers model. The new model allows the National Assembly for Wales to legislate on matters that are not reserved to the UK Parliament. The website of the Welsh Assembly states that ‘Assembly Acts must not breach any of the restrictions set out in the new Schedule 7B of [sic] the 2006 Act, for example that Assembly Acts must not modify private law (such as contract, tort, property ) unless it is for a devolved purpose, or modify certain criminal offences (such as serious offences against the person and any sexual offences)’ [my italics].
In this article, I outline the unique law – both existing and on the horizon – in Wales, as it relates to property.
In March 2016, the National Assembly approved its first Welsh tax legislation in relation to tax-raising powers devolved by the Wales Act 2014: the Tax Collection and Management (Wales) Act. This provides powers for tax administration, including those to establish the first ever Welsh tax authority, the Welsh Revenue Authority (WRA).
Its introduction was followed by the Land Transaction Tax and Anti-Avoidance of Devolved Taxes (Wales) Act 2017 and Landfill Disposals Tax (Wales) Act 2017. These acts have resulted in the WRA administering and collecting two new devolved Welsh taxes: land transaction tax (LTT) and landfill disposals tax (LDT), which replaced, respectively, stamp duty land tax (SDLT) and landfill tax in Wales from 1 April 2018.
LTT is payable if a property or land is acquired over a certain threshold price. The current threshold is £180,000 for residential properties and £150,000 for non-residential land and properties.
An additional property purchased for less than £40,000 will attract zero per cent LTT. For purchases from £40,000 to £180,000, the LTT rate will be three per cent on full purchase price. For rates for properties above £180,000, see table 1 below.
|Table 1: Rates of land transaction tax|
|Band||Normal rate||Additional property|
|Less than £180k||0%||3%|
|£180k to £250k||3.5%||6.5%|
|£250k to £400k||5%||8%|
|£400k to £750k||7.5%||10.5%|
|£750k to £1.5m||10%||13%|
|Rest over £1.5m||12%||15%|
Solicitors and licensed conveyancers need to register to file LTT returns online. There are three steps to registration:
The first official statistics released by the WRA referred to more than 1,200 organisations registering for LTT (before 15 April 2018). The majority of registrations were in England (72 per cent England, 27 per cent Wales, and two per cent another country). These statistics demonstrate that LTT is not simply of importance to firms practising in Wales.
In the statistical release for June 2018, data was presented around provisional official statistics for notifiable LTT transactions with an effective date of May 2018. There were:
At the close of 13 June, there were 1,577 organisations that had registered for online LTT submissions, with a total of 4,023 registered online users. Further statistical releases have since been published, which are available on the WRA website.
Land transaction tax is not simply of importance to firms practising in Wales
Some have noted that the generous threshold entry rate for residential property in comparison to England may prove to be a factor in the development of the housing market in Wales, particularly in the north-east and south-west. The removal of the toll across the Severn at the end of 2018 will also contribute to the attractiveness of the market in that area.
Others have questioned the non-residential rates of LTT. In February 2018, the Welsh government was asked what considerations were given, when developing the commercial aspects of LTT, to the impact that the reduced Scottish land and building transactions tax (4.5 per cent for buildings over £350,000) has had in increasing investment in Scotland.
The reply given was that the evidence from Scotland did not show that having relatively low top rates of tax will increase high value transactions and investment. The commercial property sector is volatile and influenced by multiple factors, not just tax.
The forecast for LTT for 2018-19 included an estimate that around 250 non-residential transactions would be subject to the six per cent rate. It is expected that there will be a total of around 6,000 non-residential transactions (including those which will be relieved) in 2018-19, so the percentage of transactions liable for the non-residential six per cent rate is estimated to be four per cent. In total, 96 per cent of non-residential transactions will either be relieved, pay the same, or pay less tax than they would under SDLT.
In February 2018, Mark Drakeford, the Welsh cabinet secretary for finance, announced that housing is a priority for the Welsh government, and that a tax on vacant land could prevent the practice of land-banking and land not being developed within expected timescales. Welsh government research identified 400 stalled development sites in 2015, with at least 7,600 homes held up.
In February 2018, the Republic of Ireland introduced the vacant site levy: any owner of a vacant site on the register who does not develop their land in 2018 will pay the three per cent levy (payable in arrears in 2019), and then become liable to an increased rate of seven per cent from 1 January 2019. This has been criticised by some estate agents, raising fears that boom and bust could be amplified by the seven per cent rate.
The Republic of Ireland wish to change the behaviour of people who are just sitting on land
Drawing on the experience of the Republic of Ireland, Drakeford stated: ‘…the taxes that we are talking about will have an impact on behaviour rather than on revenue raising … what they say in Ireland is that they don’t expect to generate a great deal of revenue, but they do wish to change the behaviour of people who are just sitting on land and not using the land for important purposes.’
National Assembly members and both Houses of Parliament will first be asked to agree a draft order in council to transfer the necessary powers. The Welsh government would then consider whether to bring detailed proposals in the Assembly.
This act is not yet in force, with the exception of part 11 (definitions, interpretation and operation of the act). On a date yet to be set by the Welsh government, any tenancy or licence which exists on that day will automatically be converted into an ‘occupation contract’. The aim of the legislation is to simplify the residential letting process and make it more transparent for tenants, through standard forms of occupation contracts.
Under the new legislation, there are two types of occupation contract. The standard contract is designed for the private sector. The secure contract (with some exceptions) is for ‘community landlords’. The definition of community landlord includes local authorities.
The critical date will be the ‘appointed day’ under section 240. On this date, provided that they satisfy the specified criteria, any tenancies or licence agreements in existence will automatically be converted into one of the two forms of occupation contract.
The implementation of the act is not expected before spring 2019, as secondary legislation and regulations need to be made before the act can be implemented. Consultations and other information on implementation will be publicised on the Welsh government website .
To support legal professionals seeking to submit LTT, the WRA has outlined some helpful information, some of which is based on the new tax authority’s learnings from the first quarter of operations. This content has been kindly provided by the WRA specifically for this article.
The WRA worked closely with the Law Society to share information and encourage legal professionals to register on the new online tax system, launched in February, ahead of 1 April 2018. The WRA is still urging registration at least 10 days before the first transaction.
Professionals can register their organisation online . It is then possible to add individual users to individually file LTT via an online dashboard. A video is available showing how to register. The WRA has also launched its own tax calculator , which is linked with the Welsh government’s rates and bands . The WRA has a helpdesk team to support enquiries, on 03000 254 000 .
The LTT rules for residential property transactions at a higher rate differ in several ways from SDLT. Guidance is available on the WRA website and the WRA helpdesk team can be contacted to discuss queries (03000 254 000 ).
As the first tax authority in Wales, the WRA recognises the opportunity to approach tax administration differently. The WRA published its charter in March, which outlines how the organisation wants to work with everyone to help deliver a fair tax system for Wales.
The charter sets out eight shared values and responsibilities, and is the basis for what the WRA terms ‘Our Approach’. This new and innovative, two-way approach to tax is made up of three principles (inspired through three Welsh language terms), and aims to ensure the right amount of tax is paid at the right time.
The approach has been outlined in full in the WRA’s first corporate plan .
The WRA will, in certain circumstances, provide its opinion on the tax consequences of specific circumstances or transactions. This is to provide taxpayers with the ability to file with more certainty. Anyone can seek a tax opinion from the WRA.
However, it is essential that all guidance, which is readily available on the WRA website, be reviewed before an opinion is submitted to the tax authority. Information on making a submission is available on the WRA website.