Wales-only land tax to push up price of buying farmland

Farmers in Wales face paying thousands of pounds more in tax on major land purchases as a result of the introduction of the new Wales-only land transaction tax (LTT).

The Central Association of Agricultural Valuers (CAAV) is warning that the Welsh replacement for stamp duty land tax (SDLT) could see farm buyers facing higher tax bills.

The new regime – which applies from 1 April 2018 – introduces changes to rates of tax payable for residential and non-residential property.

See also: Annual land tax based on value proposed by Scottish Government

The biggest change of relevance to farmers is a rise in the tax rate for any non-residential property that sells for more than £1m.

New thresholds

Under current SDLT arrangements, the tax charge for land selling for more than £250,000 is 5%, but in Wales the charge will be 5% from £250,000 to £1m and then rise to 6% on anything over the £1m threshold.

However, the purchaser of any non-residential property worth between £150,000 and £250,000 – which could include smaller land parcels – will benefit from a reduction in the tax rate from 2% to 1%.

Jeremy Moody, CAAV secretary, said as an example, the freehold sale of a farm in Wales, valued at £2m, would result in an LTT charge of £98,440 from April 2018, compared with £89,450 under SDLT.

“Where land sells at £8,000/acre, any sale of more than 125 acres will attract more tax under LTT than it would under SDLT.

“A farm at £4m would see a Welsh LTT bill of £218,440 compared with £189,450 under SDLT.”

Higher-value tenancies could also be affected, with non-residential and mixed properties subject to a 2% tax from £2m in Wales, lower than the £5m threshold under SDLT, though that may affect few Welsh farm business tenancies, said Mr Moody.

For purely residential properties, the tax on those selling between £400,000 and £750,000 will increase from 5% to 7.5%, while it will increase from 5% to 10% for those over £750,000.

Tax on residential properties worth below £250,000 is set to fall. As in the rest of the UK, anyone who already has a dwelling and buys another purely residential property will be subject to an extra 3% on top of the LTT.

This affects more transactions than buy-to-let and second homes – from DIY developers to parents buying with children, said Mr Moody. “This new Wales-only tax is relevant to farmland purchases as these are often at the higher values that will attract the increased tax,” said Mr Moody.

“As well as bearing directly on property transactions in Wales, differences in rates may affect prospective purchasers considering whether to buy property in Wales or elsewhere in the UK.”

Non-residential land transaction tax (LTT) rates (Wales) from 1 April 2018

Price threshold LTT rate
£0-£150,000  0%
£150,000-250,000 1%
£250,000-£1m 5%
£1m+  6%

Current stamp duty land tax (SDLT) rates (England)

Price threshold SDLT rate
£0-£150,000  0%
£150,000-£250,000 2%
£250,000+ 5%

Are you, like many other farms, missing out on tax claims for R&D?

If you’re a limited company, you could be eligible for tax credits if you’re carrying out R&D on your farm. For more information and to find out if you’re eligible visit our R&D tax credits page.

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