Cross-granted leases and LTT anti-avoidance in Wales
Cross-granted leases and LTT
Two companies may exchange long leases at peppercorn rents, but LTT can still use the market value of each lease.
- Consider the whole arrangement, not one document
- Check whether the leases are exchanged
- Do not use the source’s figures as current rates
Scroll down for the full analysis.
Read the original guidance here:
Cross-granted leases and LTT anti-avoidance in Wales
A peppercorn rent can look like no payment at all. It may not be. Where two companies swap long leases over homes, Land Transaction Tax (LTT) can look at what each lease is really worth.
What this rule is about
This official example concerns two separate companies with large buy-to-let businesses. Each buys a similar freehold home on the same development. On the day they complete, each grants the other a 22-year lease.
After those steps, neither company simply owns the home it bought. Each has a long lease over the other home and keeps the freehold interest that takes effect after the lease ends.
The companies exchange the two leases. One company gives its lease in return for the other company’s lease. The law can therefore treat the value of a lease as the amount paid for it.
What the official source says
The source says the leases have peppercorn rents. The companies exchange them. It says the amount used for LTT on each lease is the lease’s market value.
- A Ltd buys the freehold of Home A.
- B Ltd buys the freehold of near-identical Home B.
- Both purchases complete on the same day.
- A Ltd grants B Ltd a 22-year lease of Home A.
- B Ltd grants A Ltd a 22-year lease of Home B.
- Each lease has a peppercorn rent.
- The leases are exchanged, rather than given for nothing.
- The source gives each lease a market value of £60,000.
The leases also link the companies’ future actions. If either company sells or gives up one lease, it must give up the other lease for the same payment, because the linked terms make each later transaction depend on the other. The obligations bind both companies. Both must return homes in good condition.
What this means in practice
The label on a document is not the whole answer. Calling rent a peppercorn does not remove the need to ask what each side gives and receives as part of the wider deal.
Under the exchange rules, market value can replace a nominal figure when the parties exchange major interests in land, even if the documents state only a peppercorn rent. A long lease can qualify.
- Look at all agreements signed as part of the deal.
- Check whether one lease was given in return for another.
- Do not assume a zero or peppercorn rent means zero LTT.
- Obtain a proper valuation of each lease interest.
- Keep records showing any genuine business reason for the structure.
The Welsh general anti-avoidance rule can also matter. It aims at a tax advantage from arrangements that are artificial. A tax advantage includes reducing tax, delaying payment or obtaining extra relief.
How to analyse it
Start with the full commercial picture, not one lease in isolation. The statutory definition of arrangements is wide. It includes a transaction, agreement, action or series of steps, whether legally enforceable or not.
- List every purchase, lease and linked promise.
- Work out what each company owned before and after completion.
- Ask what each company gave in return for its lease.
- Value the freehold and lease interests at the relevant date.
- Ask whether reducing LTT was a main purpose of entering the arrangement.
- Consider the real business substance apart from any tax saving.
- Check whether the chosen steps were a reasonable way to apply Welsh tax law.
This last question is often the hard one. The legislation says that commercial substance can be relevant. So can an outcome that Parliament would not reasonably have expected when it made the rule.
Example
In the official illustration, each freehold home costs £150,000. For each freehold purchase, the source states that LTT is £4,500 at the higher rates and nil at normal rates, as calculated in its official illustration. Those are its figures.
Although the leases carry only peppercorn rents, the source values each lease premium at £60,000. It gives LTT of £1,800 at the higher rates and nil at normal rates for each lease. These are the source’s example figures, not figures to use for a current purchase.
Why this can be difficult in practice
You might think the companies are unconnected, so the deals must be separate. That does not settle it. The source describes a long business association, matching completion dates, and lease terms that connect any later sales or surrenders, even though the companies may initially appear unconnected. Those links matter.
In the supplied passage, the source does not say that WRA has finally decided that the general anti-avoidance rule applies to this particular arrangement. The passage records no final decision. It sets out the arrangement and the tax calculations. A real case needs its own facts assessed.
- Commercial links can matter even where companies are not connected.
- Matching dates can be evidence, but are not an answer by themselves.
- Lease wording may show that transactions depend on each other.
- Market value is a valuation question, not simply a figure chosen by the parties.
Key takeaways
- A peppercorn rent does not always mean no LTT amount is counted.
- Exchanged long leases can be valued at market value for LTT.
- The wider purpose and business reality of the arrangement matter.
Technical analysis
For advisers, and for anyone who wants to check the law behind this page. You do not need this section to understand the guidance above.
Legislation
- LTTA 2017 section 16 — when land transactions count as an exchange
- LTTA 2017 section 18 — how the amount paid for a transaction is worked out
- LTTA 2017 Schedule 4 para 5 — market value rules for exchanges of major interests
- LTTA 2017 section 66 — insertion of the Welsh general anti-avoidance rule
- TCMA 2016 section 81B — when arrangements have a tax avoidance purpose
- TCMA 2016 section 81C — when tax avoidance arrangements are artificial
- TCMA 2016 section 81D — what counts as a tax advantage
- TCMA 2016 section 81E — WRA power to counteract a tax advantage
Official guidance
The pages below are the Welsh Revenue Authority’s guidance. Guidance is not law. It sets out how the Welsh Revenue Authority reads the legislation, and it is not binding on you, on a tribunal or on a court. Where guidance and the legislation differ, the legislation wins. the Welsh Revenue Authority can also change or withdraw guidance, and it may not cover your facts.
Where this is not settled
- Whether a real arrangement is artificial depends on its full facts, including its business purpose and commercial substance.
- The supplied source does not give the date of the example, so its tax figures should not be used to calculate current LTT.
- The required currency notice was not present in the mounted skills, so the current status of points that depend on post-bundle changes needs checking.
Evidence you would need
This kind of case is decided on the facts of the individual property. These are the records that usually settle it, and the ones an adviser would ask you for.
- The contracts and leases for every step in the arrangement
- Evidence of why the parties chose the structure
- Valuations of the freeholds and lease interests
- Details of any rights linking a sale or surrender of one lease to the other
- The LTT returns and calculations submitted for each transaction
Explore this with an AI
Readers often want to test their own situation. Copy the prompt below into ChatGPT, Claude or Gemini. It hands the model the actual legislation for this page rather than letting it answer from memory, and tells it to be explicit about what is uncertain. What comes back is information, not advice – check it against the links above.
I am researching Land Transaction Tax (LTT), the tax on property in Wales. It replaced Stamp Duty Land Tax in Wales on 1 April 2018, and SDLT does not apply in Wales. MY QUESTION Cross-granted leases and LTT anti-avoidance in Wales [Replace this with your own situation: what you are buying, the price, the dates, who the buyer is, and what you plan to do with the property.] THE LAW THIS TURNS ON - LTTA 2017 section 16 - when land transactions count as an exchange https://www.legislation.gov.uk/anaw/2017/1/section/16 - LTTA 2017 section 18 - how the amount paid for a transaction is worked out https://www.legislation.gov.uk/anaw/2017/1/section/18 - LTTA 2017 Schedule 4 para 5 - market value rules for exchanges of major interests https://www.legislation.gov.uk/anaw/2017/1/schedule/4/paragraph/5 - LTTA 2017 section 66 - insertion of the Welsh general anti-avoidance rule https://www.legislation.gov.uk/anaw/2017/1/section/66 - TCMA 2016 section 81B - when arrangements have a tax avoidance purpose https://www.legislation.gov.uk/anaw/2016/6/section/81B - TCMA 2016 section 81C - when tax avoidance arrangements are artificial https://www.legislation.gov.uk/anaw/2016/6/section/81C - TCMA 2016 section 81D - what counts as a tax advantage https://www.legislation.gov.uk/anaw/2016/6/section/81D - TCMA 2016 section 81E - WRA power to counteract a tax advantage https://www.legislation.gov.uk/anaw/2016/6/section/81E Guidance page from the Welsh Revenue Authority on this topic (guidance, not law): https://www.gov.wales/tax-collection-and-management-wales-act-2016-general-anti-avoidance-rule-technical-guidance#6589 HOW I WANT YOU TO ANSWER 1. Work from the legislation above. Read it before answering. Guidance from the Welsh Revenue Authority is its view of the law, not the law, and does not bind a tribunal or a court. 2. Tell me what the rule actually requires, in plain English. 3. Tell me which facts decide the answer, and which facts would change it. 4. Tell me what evidence I would need to support the position. 5. Be explicit about anything unsettled or fact-sensitive. Do not guess. 6. Your training data has a cutoff and SDLT rates and reliefs change at fiscal events. Say so if you are not sure the law is current. POINTS ALREADY KNOWN TO BE UNCERTAIN ON THIS TOPIC - Whether a real arrangement is artificial depends on its full facts, including its business purpose and commercial substance. - The supplied source does not give the date of the example, so its tax figures should not be used to calculate current LTT. - The required currency notice was not present in the mounted skills, so the current status of points that depend on post-bundle changes needs checking. Do not give me a conclusion you cannot support from the provisions above.
Legislation links show the Land Transaction Tax and Anti-avoidance of Devolved Taxes (Wales) Act 2017 as it stood on 2025-11-17. The law may have changed since, and the rules that apply are those in force on the date of your transaction. The official guidance this page is based on is here.
This page was last updated on 4 September 2026
Useful article? You may find it helpful to read the original guidance here: Cross-granted leases and LTT anti-avoidance in Wales
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