Welsh Government should 'abolish Land Transaction Tax'
The Welsh Government is making “a bad tax worse” by raising higher rates on additional properties under the Land Transaction Tax (LTT), according to leading economics research body the Institute for Fiscal Studies (IFS).
The IFS this week published a new report looking at taxation in Wales, ahead of the upcoming Senedd elections in May.
The report recommends that the Welsh Government should reduce or even abolish the LTT, and instead raise revenues through reformed council tax and business rates.
Property transaction tax “exceptionally damaging”
With elements of taxation policy devolved, the IFS highlighted that the LTT is more “progressive” than Stamp Duty Land Tax which it replaced, reducing the tax implications for lower-value purchases of property and increasing the burden for properties valued over £350,000.
But it emphasised that a tax on property transactions is “an exceptionally damaging way to raise revenue”, leading to property being misallocated “[making] everyone worse off”.
In particular, the report highlighted that the higher rate on additional properties might make it cheaper for people to move from renting to owner-occupation, but it means it is “even more difficult and expensive” for both tenants who continue to live in the private rented sector, due to higher rents, and landlords, including in discouraging sales within the private rented sector.
Opportunity through council tax reform?
The IFS prefers the use of council tax and business rates to raise revenues to the LTT, as this is “fairer and more efficient” and would not stifle property transactions.
The report does give praise to the reforms of council tax which the Welsh Government has consulted on during the current session of the Senedd, informed by an IFS report it commissioned.
The current Welsh Government has legislated that properties will be revalued in 2028, with a five-yearly update going forward: something which will ensure greater fairness in the system.
However, there has been no decision yet about what this revaluation will include, for example whether bandings will be changed or the introduction of a ‘mansion tax’ similar to that in England and Scotland – and the next Welsh government will need to pick up the baton on progressing this.
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