New Welsh Land Transaction Tax – What Happens in Cross-Border Transactions?

The Welsh Revenue Authority (WRA) has issued guidance on how to deal with tax returns and payment of the new Welsh Land Transaction Tax (LTT) and English SDLT in cross-border transactions.

Cross-border land transactions involving only England and Wales will either be:

·       “Multiple Property” transactions – the purchase of multiple properties which fall within England and Wales, for a single consideration, whether in a single transaction or series of transactions; or

·       Single “cross-title” property transactions – the purchase of a single property that includes land on both sides of the Welsh-English border.

For both types of cross-border transaction, the total consideration given must be apportioned on a “just and reasonable” basis.

Cross-title transactions are an interesting case.

They won’t arise frequently, but when they do they have the potential to cause quite a headache when trying to figure out how to deal with the two tax returns that will be required - one in Wales for LTT and one in England for SDLT - and how to apportion the consideration properly to calculate LTT and SDLT liability.

Where’s the border?

That’s the first question to answer.

The land will often be registered with a single title at the Land Registry, and England and Wales continue to be served by the same Land Registry (unlike Scotland, which has its own Land Registry and legal system).

The Welsh/English border might be shown by a broken line on Land Registry title plans, but although this might be an indication of where the border lies, the guidance says it isn’t conclusive.

On some title plans, the border won’t be marked at all. The guidance says that a Part A register annotation will state: “The land in this title may be located partly in England and partly in Wales”.

It’s not clear whether that’s a note that should already be on title registers now or is something the Land Registry will note on all relevant titles from now on.

The guidance states that in cases where the border is not marked on the title plan it will need to be identified from other geographical sources. However, if even those title plans which do identify the border aren’t conclusive, then this exercise might be necessary in all cases, or at any rate where the border needs to be determined precisely for valuation purposes.

To help find the border and the tax jurisdictions, the guidance says you can use evidence from the register of title; “knowledge of the UK’s geography” (!) and “local authority searches from planning applications” (this is an odd way of putting it – do they mean local searches or planning applications or both?).

For properties close to the border but not crossing it, the guidance states that “the local authority code will help find the right tax jurisdiction”.

I’m not convinced that these sources will prove to be that useful in all circumstances. If it proves difficult to determine the border, then a more detailed survey will be required.

“Just and reasonable” apportionment of consideration

For cross-title transactions, the consideration given for the land needs to be apportioned between England and Wales on a just and reasonable basis for the purposes of the respective taxes.

You then make a SDLT return to HMRC for the apportioned English consideration and a LTT return to WRA for the apportioned Welsh consideration.

You can claim the zero rate in both tax regimes.

However, you can’t just guess how to apportion the consideration, nor can you apportion it solely with a view to trying to max out the zero rate bands used in both tax regimes (if the facts don’t lend themselves to such a split) – in either case that wouldn’t be “just and reasonable” and may lead to penalties being imposed.

The apportionment may be undertaken by you, the taxpayer, or by an independent person qualified to make such a valuation (such as a chartered surveyor) - and in difficult cases, that’s going to be the safer approach to take.

Simply basing the apportionment on relative areas may be appropriate for fields, but where there are buildings on the land, then clearly the part of the land with a building on it will be more valuable than land without a building.

The Valuation Office Agency provides some guidance on what factors should be considered when apportioning value, but it relates to capital gains tax and separately to claims for private residence relief. However, the WRA guidance indicates that the principles will be largely the same.

There are some examples of multiple property and cross-border transactions given in the WRA guidance, and Example 2 is particularly useful in explaining how to deal with a cross-title transaction.

I’m not a tax specialist, so the main point I want to get across here is that if you’re dealing with cross border transactions of either variety after 1 April 2018 (and multi property transactions could also involve properties in Scotland and Northern Ireland too just to make it even more interesting); be aware of these issues and take specialist tax advice at an early stage in the process.

That way, you will be aware of the tax liabilities from the outset and reduce the risk of incurring penalties for getting it wrong.