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Our client became aware that the property they purchased, could have unnecessarily had the higher rates of Land Transaction Tax (“LTT”) applied to it at completion. After the client had spent some time researching the topic at a high level, we were instructed to advise on the LTT position, that being the Stamp Duty Land Tax (“SDLT”) equivalent in Wales, which is managed by the Welsh Revenue Authority (“WRA”).
During the property conveyance, the client and their solicitors were unaware that the property in question should have in fact been subject to the lower (non-residential) rates of LTT. This is a common occurrence which is has been shown across a number of solicitors. Luckily, this was presented to us within the 12-month period following completion, allowing for a LTT reclaim to be submitted to the WRA.
Ordinarily, residential properties are subject to the standard residential (or higher) rates of LTT depending on whether the purchaser owns other residential property. It should however be noted that, a transaction is a non-residential transaction if any part of that transaction consists of or includes non-residential property. Where this is the case, the non-residential rates of LTT are applied in calculating the LTT payable.
As part of our service, we analysed and evaluated whether the transaction amounted to a residential, or non-residential transaction taking into account all facts and evidence surrounding the case. In this case, a report carried out by the property surveyors which detailed the condition of the building was a strong supporting factor in arriving at the
non-residential conclusion. This can be extremely helpful (though not necessary) when trying to ascertain how to treat a transaction for LTT purposes, and is supporting evidence where the WRA look to issue an enquiry into the LTT return.
It was important to consider, particularly at the point of completion, whether the property was suitable for use as a residential dwelling. Additionally, we looked at whether the property was in the process of being constructed or adapted for use as a dwelling. Consideration of the legislation above and as well as consideration of the WRA’s view (or HMRC’s view if the property is located in England) should all be taken in account on what is now a complex area of taxation.
Quite importantly, the key consideration is the state of the property at the date of completion. HMRC have in the past, attempted to place reliance on whether the property could be renovated to be used as a dwelling at a later date as seen in the First-tier tribunal (FTT) case PN Bewley Ltd V HMRC. Here, the FTT upheld that when considering the SDLT position, potential renovation is not relied upon when analysing the property at completion and therefore the taxpayers’ position was upheld.
In this particular LTT case, we aided the taxpayer by providing them with a formal LTT report confirming the LTT position and then made an application to the WRA to reclaim the LTT overpaid. This led to a recovery of over £7,000 of overpaid LTT for the taxpayer.
It should be noted that each case has its own variations and therefore advice should be sought on each particular case and their transaction(s) to ensure advice is based on the accurate facts and information.
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