Wales Raises Land Transaction Tax for Second Homes and Buy to Let Properties

The Welsh Government has approved changes to LTT rates and bands, raising the tax surcharge on second homes and limited company residential buy to let investment properties. Jeni Browne explains what this means for property investors in Wales.

Included in the Welsh Finance Minister, Rebecca Evans’ draft budget for 2021-2022, this sudden change is part of the plan to help the Welsh Government stimulate the property market, cope with the financial fallout of the pandemic, and raise £13 million for social housing.

The changes only affect the Higher Land Transaction Tax (LTT) surcharge paid on second homes/residential properties and properties bought by limited companies or trusts. This surcharge has increased from 3% to 4% on the normal residential rates and will be payable to the Welsh Revenue Authority on all qualifying property purchases and transactions where contracts were exchanged on or after 21st December 2020. Standard home-buyer rates will apply to first-time buyers purchasing a buy-to-let property.

What are the New Higher Residential Tax Rates for Wales?

The LTT rate applies to the portion of the property price within each band

Property Purchase Price Threshold  Land Transaction Tax Rate 
Up to £180,000  4% 
£180,000.01 - £250,000  7.5% 
£250,000.01 - £400,000  9% 
£400,000.01 - £750,000  11.5% 
£750,000.01 - £1,500,000  14% 
£1,500,000.01 +  16% 

 

There is speculation that the rest of UK could follow suit as Government looks for ways to raise funds to repay the considerable debts accrued due to the pandemic; predicted to be £394 billion for the current 2020/21 financial year. However, as we’ve previously reported, it’s expected that a hefty increase in Capital Gains Tax will be the likely target in England. 

Wales does have a Land Transaction Tax ‘holiday’ for main residential property transactions until 31st March 2021, which raises the LTT threshold from £180,000 to £250,000.  But, unlike in England, the increased threshold is only applied for main residential property transactions – not to second homes or corporate purchases. 

Main Residence Land Transaction Tax Rates for Wales

Below are the LTT rates for main residential properties during and after the tax holiday in Wales.  

Property Purchase Price Threshold  LTT 27/07/2020 – 31/03/2021  LTT 01/04/2021 Onwards 
Up to £180,000  0%  0% 
£180,000.01 - £250,000  0%  3.5% 
£250,000.01 - £400,000  5%  5% 
£400,000.01 - £750,000  7.5%  7.5% 
£750,000.01 - £1,500,000  10%  10% 
£1,500,000.01 +  12%  12% 

 

What does this mean for property investors?

Unfortunately, this does mean that the initial costs of investing in buy-to-let property or holiday let properties in Wales is more expensive than before. Although, it’s worth noting that according to Rightmove, the average house price for Wales is currently £210,943, the fourth cheapest regional area in the UK but has seen an 8.2% increase in the last 12 months. Predictions also indicate it may have one of the highest average rental yields in the UK (4.31%) in 2021 (SevenCapital). Therefore, it’ll likely remain a strong contender for buyers and investors despite the surcharge increase. 

Of course, there’s still time to save up to £2,450 in Land Transaction Tax before the 31st March deadline, but not a lot of time. If you’re looking to invest in Wales and need a buy to let mortgage, do get in contact with our expert team on 0345 345 6788 or email enquiry@mortgagesforbusiness.co.uk. 

 

NB: ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

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