Padbury v The Welsh Revenue Authority (Land Transaction Tax (LTT) - higher rates of tax - whether purchase of property in Wales was a replacement for the buyer's only or main residence) [2025] UKFTT 396 (TC) (04 April 2025)

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	First-tier Tribunal (Tax)
You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Padbury v The Welsh Revenue Authority (Land Transaction Tax (LTT) - higher rates of tax - whether purchase of property in Wales was a replacement for the buyer's only or main residence) [2025] UKFTT 396 (TC) (04 April 2025) URL: https://www.bailii.org/uk/cases/UKFTT/TC/2025/TC09470.html Cite as: [2025] UKFTT 396 (TC)

DECISION

The form of the hearing

1. The form of the hearing was V (video) with all parties attending by Microsoft Teams.

2. The documents to which the Tribunal was referred were contained in a hearing bundle of 218 pages.

3. Prior notice of the hearing had been published on the gov.uk website, with information about how representatives of the media or members of the public could apply to join the hearing remotely in order to observe the proceedings. As such, the hearing was held in public.

Introduction

4. This is an appeal by the Appellant, Mr Jonathan Padbury, against the decision of the Respondents, the Welsh Revenue Authority ("WRA"), to reject his claim for refund of a claim for a refund of the higher rate of land transaction tax ("LTT") imposed on his acquisition of a residential property in Wales (the "Welsh Property") in 2019.

5. In short, by his claim, Mr Padbury asserted that he was entitled to a refund of the higher rate of LTT on the grounds that an exception from the higher rates of LTT, which is referred to as "the replacement of residence exception", and which is contained in paragraph 8 Schedule 5 Devolved Taxes (Wales) Act 2017 ("LTTA"), applied. The WRA rejected that claim.

The hearing and this decision notice

6. At the hearing on 12 December 2024, the Tribunal decided to dismiss the appeal. The Tribunal gave its decision orally with reasons.

7. The Tribunal issued a decision notice containing a summary of the findings of fact and reasons for the decision as required by rule 35(3) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI/2009/273) (the "Tribunal Rules") on 16 December 2024.

8. The WRA, even though they were the successful party, made a written request for a decision notice, which contains full findings of fact and reasons for the decision, under rule 35(4) of the Tribunal Rules (a "full decision").

9. This is the full decision.

Findings of fact

10. The facts are not in dispute.

11. Mr Padbury purchased a residential property in Wales (the "Welsh property"). The purchase was completed on 28 November 2019, which was the "effective date" of the transaction for the purposes of LTT.

12. At the time, Mr Padbury owned another residential property in Worcester, England (the "Worcester property"). As a result, his purchase of the Welsh property was a "higher rate residential property transaction" within section 24(7) LLTA and Schedule 5 LTTA (see below) and was subject to higher rates of LTT. Mr Padbury paid LTT of £23,525 on the purchase of the Welsh property.

13. Mr Padbury intended to sell the Worcester property and to move to the Welsh property. However, his sale of the Worcester property was delayed for various reasons.

(1) Lockdowns imposed under the Coronavirus Act 2020 from 26 March 2020 onwards at times prevented the effective marketing of the property.

(2) Mr Padbury was subject to furlough during the Covid-19 pandemic and was subsequently made redundant. His wife's business was forced to close.

(3) When a buyer was eventually found for the property in Worcester, the sale was further delayed because the buyer needed an environmental report to complete the sale of his property, which took six months to obtain. This delay was also caused by a backlog of reports due to the Covid-19 pandemic.

14. Mr Padbury completed the sale of the property in Worcester on 4 January 2023. This was the "effective date" of the transaction for the purposes of LTT.

15. On 21 February 2023, Mr Padbury made a claim under paragraph 23 Schedule 5 LTTA (see below) for a refund of the higher rate of LTT paid on the Welsh property on the grounds that he had sold his previous main residence (the Worcester property) and so the Welsh property had ceased to be subject to higher rates of LTT. The amount of the claim was £12,450.

16. After an enquiry, the Welsh Revenue Authority issued a closure notice rejecting the claim on the grounds that the conditions for the replacement of residence exception to the higher rates of LTT (in paragraph 8 Schedule 5 LTTA) were not met. This was because Mr Padbury did not sell his previous main residence (the Worcester property) within the period of 3 years beginning on the day after the effective date of his purchase of the Welsh Property (as required by paragraph 8(4) Schedule 5 LTTA).

The relevant legislation

17. LTT is a devolved tax levied by the Welsh Government under the LTTA on transactions involving interests in real property located in Wales.

18. Under section 2 LTTA, LTT is to be charged on "land transactions". A "land transaction" is defined in section 3 LTTA as "an acquisition of a chargeable interest". A "chargeable interest" is defined in section 4 LTTA in broad terms to include most interests in or rights over land in Wales. A land transaction is a chargeable transaction and so subject to LTT unless certain exemptions or reliefs apply (section 17 LTTA).

19. Under section 24(1) LTTA, Welsh Ministers are required by regulations to specify the tax bands and tax rates for each tax band for determining the amount of LTT that is charged for three types of chargeable transactions: (a) residential property transactions, (b) higher rates residential property transactions, and (c) non-residential property transactions.

20. At the relevant time, the relevant tax bands and tax rates were set by the Land Transaction Tax (Tax Bands and Tax Rates) (Wales) Regulations 2018/128. The tax bands and tax rates for residential property transactions and higher rates residential property transactions were set out in Table 1 and Table 2 in Schedule 1 to those Regulations respectively. The tax rates for residential property transactions ranged from 0% to 12%. The tax rates for higher rates residential property transactions ranged from 5% to 17%.

21. The definition of a residential property transaction is found in section 24(6) LTTA. It was in the following form:

(6) A chargeable transaction is a residential property transaction if—

(a) the main subject-matter of the transaction consists entirely of an interest in land that is residential property, or

(b) where the transaction is one of a number of linked transactions, the main subject-matter of each transaction consists entirely of such an interest.

22. However, by virtue of section 24(7) LTTA, a chargeable transaction is a higher rates residential property transaction (and not a residential property transaction), if Schedule 5 LTTA applies.

23. Schedule 5 LTTA sets out different criteria for determining whether chargeable transactions are higher rate residential property transactions in various circumstances. The provisions that are relevant to this case are those in Part 2 of Schedule 5 which apply to transactions involving a dwelling where the buyer is an individual.

24. Under paragraph 3(2) Schedule 5 LTTA, subject to certain exceptions, a transaction will be a higher rate residential property transaction where:

(1) the buyer is an individual,

(2) the transaction involves a major interest in a dwelling,

(3) the chargeable consideration for the transaction is £40,000 or more, and

(4) paragraph 5 Schedule 5 LTTA applies.

25. Paragraph 5 Schedule 5 LTTA applies in relation to a transaction if, at the end of the day that is "the effective date" of the transaction the buyer has a major interest in a dwelling other than the purchased dwelling, and (b) that interest has a market value of £40,000 or more.

26. There is an exception from the definition of higher rate residential property transaction in paragraph 3(2) Schedule 5 LTTA for transactions that fall within paragraph 8 Schedule 5 LTTA. Paragraph 8 Schedule 5 LTTA provides an exception for cases where a property is purchased to replace the buyer's main residence.

27. At the relevant time, paragraph 8 was in the following terms:

(1) A transaction is not a higher rates residential property transaction under paragraph 3 if the purchased dwelling is a replacement for the buyer's only or main residence.

(2) For the purposes of this paragraph, the purchased dwelling is a replacement for the buyer's only or main residence if—

(a) on the effective date of the transaction ("the transaction concerned") the buyer intends the purchased dwelling to be the buyer's only or main residence,

(b) in another land transaction ("the previous transaction"), the effective date of which was during the period of 3 years ending with the effective date of the transaction concerned, the buyer or the buyer's spouse or civil partner at the time disposed of a major interest in another dwelling ("the sold dwelling"),

(c) immediately after the effective date of the previous transaction, neither the buyer nor the buyer's spouse or civil partner had a major interest in the sold dwelling,

(d) at any time during the period of 3 years referred to in paragraph (b) the sold dwelling was the buyer's only or main residence, and

(e) at no time during the period beginning with the effective date of the previous transaction and ending with the effective date of the transaction concerned has the buyer or the buyer's spouse or civil partner acquired a major interest in any other dwelling with the intention of it being the buyer's only or main residence.

(3) Sub-paragraph (2)(c) does not apply in relation to a spouse or civil partner of the buyer if the two of them were not living together on the effective date of the transaction concerned (for the meaning of "living together", see paragraph 25(3)).

(4) For the purposes of this paragraph, the purchased dwelling may become a replacement for the buyer's only or main residence if—

(a) on the effective date of the transaction ("the transaction concerned") the buyer intended the purchased dwelling to be the buyer's only or main residence,

(b) in another land transaction the effective date of which is during the period of 3 years beginning with the day after the effective date of the transaction concerned, the buyer or the buyer's spouse, former spouse, civil partner or former civil partner disposes of a major interest in another dwelling ("the sold dwelling"),

(c) immediately after the effective date of that other land transaction, neither the buyer nor the buyer's spouse or civil partner has a major interest in the sold dwelling, and

(d) at any time during the period of 3 years ending with the effective date of the transaction concerned the sold dwelling was the buyer's only or main residence.

(5) Sub-paragraph (4)(c) does not apply in relation to a spouse or civil partner of the buyer if the two of them are not living together on the effective date of that other land transaction (for the meaning of "living together", see paragraph 25(3)).

(6) For further provision in connection with a dwelling becoming a replacement for the buyer's only or main residence, see paragraph 23.

28. Paragraph 8(6) refers to further provisions relating to the replacement of main residence exception in paragraph 23 Schedule 5 LTTA and to the making of claims for repayment of tax at the higher rates applicable to higher rates residential property transactions. At all relevant times, it was in the following form.

(1) This paragraph applies where by reason of paragraph 8(4) or 17(4) a chargeable transaction ("the transaction concerned") ceases to be a higher rates residential property transaction for the purpose of regulations under section 24(1)(b).

(2) The land transaction ("the subsequent transaction") by reference to which the condition in paragraph 8(4)(b) or 17(4)(b) was met may not be taken into account for the purposes of paragraph 8(2)(b) or 17(2)(b) in determining whether any other chargeable transaction is a higher rates residential property transaction.

(3) Sub-paragraph (4) applies where—

(a) the effective date of the subsequent transaction falls on or before the filing date for the return in respect of the transaction concerned, and

(b) the return has not been made.

(4) The buyer may, when making the return in respect of the transaction concerned, treat the purchased dwelling referred to in paragraph 8(4) or 17(4) as though it had been a replacement for the buyer's only or main residence on the effective date of the transaction concerned; and in such a case the transaction concerned is to be treated as if it had never been a higher rates residential property transaction.

(5) Sub-paragraph (6) applies where the effect of the transaction concerned ceasing to be a higher rates residential property transaction is that less tax is payable in respect of it than the buyer has already paid in accordance with a return made for that transaction.

(6) In order to obtain repayment of the amount of tax overpaid, the buyer may—

(a) within the period allowed for amendment of the return, amend it accordingly (see section 41 of TCMA);

(b) after the end of that period (if that return is not so amended), make a claim for repayment of the amount overpaid in accordance with Chapter 7 of Part 3 of TCMA.

29. The references to "TCMA" are to the Tax Collection and Management (Wales) Act 2016.

The issues between the parties

30. There is no dispute between the parties that:

(1) Mr Padbury's acquisition of the Welsh property was a land transaction involving the acquisition of a chargeable interest, and it was chargeable transaction subject to LTT;

(2) Mr Padbury's acquisition of the Welsh property would have been a residential property transaction but for the application of Schedule 5 LTTA;

(3) on the effective date for the purchase of the Welsh property, which was on 28 November 2019 (i.e. the date of completion of that purchase), Mr Padbury's acquisition of the Welsh property was a higher rate residential property transaction within Part 2 of Schedule 5 LTTA because Mr Padbury owned another property, the Worcester property, which had a market value of over £40,000; and

(4) the higher rates of LTT applied on Mr Padbury's purchase of the Welsh property at the time of the purchase of that property.

31. The issue between the parties is whether Mr Padbury's purchase of the Welsh property ceased to be subject to higher rates of LTT because the Welsh property was a "replacement of his only or main residence" for the purposes of paragraph 8 Schedule 5 LTTA and so he was entitled to a refund of the higher rate of tax.

Discussion

32. The relevant provision of paragraph 8 Schedule 5 LTTA is sub-paragraph (4). At the relevant time, it provided that a purchased dwelling may become a replacement for a person's only or main residence if:

(a) on the effective date of the transaction ("the transaction concerned") the buyer intended the purchased dwelling to be the buyer's only or main residence,

(c) immediately after the effective date of that other land transaction, neither the buyer nor the buyer's spouse or civil partner has a major interest in the sold dwelling, and

(d) at any time during the period of 3 years ending with the effective date of the transaction concerned the sold dwelling was the buyer's only or main residence.

33. Mr Padbury's purchase of the Welsh property could only qualify as a replacement for his only or main residence within paragraph 8(4) Schedule 5 LTTA if the effective date of his sale of the Worcester property was within 3 years of the effective date of his purchase of the Welsh property. It was not.

34. Mr Padbury argued that the three-year period in paragraph 8(4) Schedule 5 LTTA for him to sell his former residence should be treated as extended by the length of any periods during which he was, in effect, unable to market the Worcester property as a result of the Coronavirus Act 2020. We reject that submission. The Coronavirus Act 2020 did not make any amendment to Schedule 5 LTTA. The three-year period in paragraph 8(4) Schedule 5 LTTA remained a fixed period which, in Mr Padbury's case expired on 28 November 2022.

35. At the time, the provisions of paragraph 8 Schedule 5 LTTA did not provide the WRA with any discretion to permit a transaction to be treated as a replacement of a person's only or main residence, for example, where "exceptional circumstances" prevented that person from selling another property within the three-year period. We note that changes have subsequently been made to paragraph 8 Schedule 5 LTTA by the Land Transaction Tax and Anti-avoidance of Devolved Taxes (Wales) Act 2017 (Amendments to Schedule 5) Regulations 2024/791, but those changes only apply to transactions entered into on or after 12 July 2024 and do not assist Mr Padbury.

Disposition

36. For these reasons, we dismiss the appeal.

Right to apply for permission to appeal

37. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Rules. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to "Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)" which accompanies and forms part of this decision notice.

Release date: 02^nd APRIL 2025

First-tier Tribunal (Tax)