Advances in devolved taxes in Wales

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Donald-Drysdale By Donald Drysdale for ICAS

13 September 2018

Scotland has been firmly in the vanguard of fiscal devolution in the UK, putting ICAS in pole position to influence key developments. Wales is now following suit, introducing a range of devolved taxes and – in some cases – testing new ground by flexing its muscles in different directions.

Welsh devolved taxes are of great significance to tax practitioners in Wales, who include some ICAS members, and to many practitioners elsewhere who have Welsh clients. To view Wales in a UK perspective, note that of the total UK population of 66,040,200 the headcount in Wales is 3,125,200 (or 4.7%) compared with Scotland at 5,424,800 (8.2%). [Source: Office for National Statistics, mid-2017 estimates]

Land transaction tax

From 1 April 2018 the new land transaction tax (LTT) replaced stamp duty land tax (SDLT) in Wales, as explained here on the Welsh Government’s website.

The LTT legislation is broadly consistent with SDLT, preserving its underlying structure and mirroring key elements such as partnerships, trusts and reliefs. The Welsh Government has claimed that LTT will provide stability and reassurance to businesses and the property market, while simplify the tax and making it fairer, improving its efficiency and effectiveness, and focusing on Welsh needs and priorities.

The starting threshold for LTT on residential properties is £180,000, compared with £125,000 for SDLT and (in Scotland) £145,000 for land and buildings transaction tax (LBTT). Like SDLT and LBTT, LTT is tiered so that different rates apply to separate layers of the property price.

A higher residential rate of 3% on top of the main residential rates may apply on acquisitions of second homes, and also when companies and (in some cases) trusts acquire residential properties. LTT offers no special relief for first-time buyers.

For non-residential properties, lower rates apply but the starting threshold is £150,000.

Full details of the LTT rates and thresholds are set out here in a Welsh Government factsheet.

Land disposals tax

From 1 April 2018, the new landfill disposals tax (LDT) replaced Landfill Tax (LfT) in Wales, as explained here on the Welsh Government’s website.

Like its predecessor, LDT is a tax on the disposal of waste to landfill and is charged by weight. It is payable by landfill site operators, who pass on the cost to waste operators through their gate fee.

For the first two years of its operation, LDT is being charged at lower and standard rates in line with those in the rest of the UK.

As in the case of Scottish landfill tax (SLfT), an ‘unauthorised disposals rate’ of 150% of the standard rate applies for taxable disposals made at places other than authorised landfill sites, while in similar circumstances in England and Northern Ireland the LfT avoided plus an additional penalty of up to 100% may be charged.

Note that LTT and LDT, being wholly devolved, are administered by the Welsh Revenue Authority and not be HMRC.

The Welsh rates of income tax

From 6 April 2019 responsibility for income tax payable on non-savings non-dividend income of Welsh taxpayers is to be partly devolved to Wales, as explained here on the Welsh Government’s website.

The basic, higher and additional rates of UK income tax on such income will each be cut by 10p. The National Assembly for Wales will then decide on three Welsh rates of income tax to be added to the reduced UK rates. The combination of reduced UK rates plus the Welsh rates will determine the overall rates of income tax paid by Welsh taxpayers.

Those familiar with the history of Scottish income tax will see that this reflects elements of the now-superseded Scottish rate of income tax, but the absence of a ‘lock-step’ means that the three component Welsh rates may differ from one another.

For Welsh taxpayers, the personal allowance will remain the same as it is in England, Scotland and Northern Ireland. However, unlike the position for Scottish taxpayers, the thresholds for the higher and additional rates will stay the same as in England and Northern Ireland; nor is there scope for Wales to introduce any extra income tax rates and bands. Responsibility for taxing savings and dividend income and capital gains will remain with the UK Government.

The statutory definition of a ‘Welsh taxpayer’ follows very similar lines to that of a Scottish taxpayer and encompasses individuals whose place of residence or main place of residence is in Wales. Welsh taxpayers within PAYE will be issued with codes prefixed ‘C’ (for Cymru) – just as ‘S’ codes are issued to Scottish taxpayers.

The Welsh rates of income tax, an integral part of the UK-wide income tax regime, will be administered by HMRC on behalf of (and at the expense of) the Welsh Government, under a memorandum of understanding between them.

The minority Labour administration in Cardiff has committed that it will not increase income tax rates in Wales for the duration of the current Assembly, which is due to continue until May 2021.

Other possible Welsh taxes

During the passage of the Wales Act 2017 through Parliament at Westminster, amendments sought to assign Welsh VAT revenues to the Welsh Government, as in Scotland, and to devolve corporation tax as proposed for Northern Ireland, but these amendments were not accepted. An amendment to devolve air passenger duty was also rejected but the UK Government said it might be willing to consider this in the future.

Following a public opinion poll conducted on social media, the Welsh Government is exploring the possibility of imposing a vacant land tax to encourage the building of new homes and increase commercial development. Three other ideas for new taxes are also being considered – a social care levy, a disposable plastic tax and a tourism tax.

Conclusion

Existing and planned devolution of tax powers provide each of the UK’s devolved administrations with genuine scope to influence its tax revenues, and Wales is no exception. Practitioners throughout the UK may need to maintain an awareness of developments in each of the four nations.

Article supplied by Taxing Words Ltd

Topics

  • Tax

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