Chartered Institute of Taxation Unsold on Second Home Buyer Transaction Tax


The Chartered Institute of Taxation (CIOT) is not convinced by the Welsh Government’s proposal to vary Land Transaction Tax (LTT) rates in a varied way at local or regional level, as an additional brake on the purchase of second homes and short-term vacations. allow. This would be in addition to the current additional tourist tax on these properties.

The CIOT argues that it will likely be more difficult to implement and less efficient to use a transaction tax for this purpose than to use a recurring tax based on current occupancy, such as the council tax. The LTT is a levy on property transactions which replaced the Stamp Duty Land Tax (SDLT) in Wales in 2018. The CIOT has made its comments1 in response to a Welsh Government consultation on the proposal.

The Welsh Government is concerned about the impact of second homes and short-term holiday rentals on the affordability and availability of accommodation for people who live permanently in the area or wish to continue to do so, in particular youth.

The Welsh Government will introduce legislation to increase council tax on second homes and long-term vacant properties to 300%, from 1 April 2023 (it is currently 100%). However, the Welsh Government also suggests2 higher LTT rates varying locally or regionally could have an additional deterrent effect and thus reduce the number of future purchases of residential properties such as second homes and vacation rentals. The aim of the proposed LTT policy is not to increase revenue, says the Welsh Government. Higher residential rates (higher rates) of LTT are already in place (subject to exemptions) where a business purchases residential property, or an individual purchases a home and they, or certain persons linked, already own another one. These higher rates increased by a further four percentage points in December 2020. The local variation of LTT as proposed would add to this.

Lakshmi Narain, Chairman of the Welsh CIOT Technical Committee, said:

“Efforts to support community living in towns and villages across Wales affected by large numbers of second homes and holiday rentals, and to improve the accessibility and availability of permanent accommodation, are understandable. But the Welsh Government may find a second home surcharge on council tax less problematic than a surcharge on a transaction tax such as LTT.

On why the LTT proposal is likely to be more difficult to implement than the additional council tax premium, Lakshmi Narain said:

“Producing a workable test of what a buyer intends to do with a second home will be difficult and unsatisfying. The buyer’s intentions may not be fully formed at the date of purchase, and what if the intention changes?

“There are also widely accepted economic arguments that transaction taxes such as the LTT discourage people from moving, thereby reducing tax levies and reducing mobility. While the tax is levied on the purchase, much of the actual economic burden falls on the seller who wishes to move.

“Reduced availability of short-term vacation rentals may also impact local tourism economies, employment opportunities, etc. The interaction with any tourist tax will need to be carefully considered.”

There are additional challenges, says Lakshmi Narain

“The application of additional tariffs according to neighborhoods could create problems of demarcation and local anomalies. On the other hand, tariffs set on the basis of territorial perimeters – some of which are huge – would not allow specific targeting of communities. To be effective, it will be necessary to regularly assess the criteria used to determine the assets falling within the scope of the regime.

“A local LTT tariff billing system on top of the existing national tariffs would add significant complexity to LTT administration and the transfer process in terms of how and when it will apply, with different tariffs in different areas. and on different types of use, while complicating the way such a system will be managed and applied.

“In areas where additional LTT rates are introduced, an early and comprehensive awareness campaign is essential for taxpayers, transfer agents and estate agents in the affected areas.

“Obviously, if a cost-effective system cannot be designed to administer a localized system of different tariffs, it strongly calls into question whether localized tariffs are reasonable in the first place.”

“No easy alternative”

Although not endorsing any specific measure, the CIOT suggests that the Welsh Government consider the alternative – albeit with its own pros and cons – of imposing these additional LTT rates nationally (instead of just in specified areas) and to introduce relief from those in the additional rates for purchases of secondary residences which are not covered by the policy, such as properties purchased with a view to rental but intended to provide a principal residence for a long-term occupation. National surcharges would then automatically apply, along with these exemptions, to areas where demand for second homes is highest (a category that would be adjusted over time as areas become more or less popular).


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