One Purchase at £300k or two at £150k

by **PlumsAhoy** on Fri Mar 05, 2010 10:08 am

Hi,

A friend and I recently purchased a pair of neighbouring houses at auction for £300k for the purpose of rennovation. They are under seperate title deeds and have been asked if we want to process it as one transaction at £300k or two at £150k. We understand that they are linked transactions for the purpose of stamp duty but was wondering if there were any other considerations before making a decision?

The only thing I can think of is that if we were to sell one house, it would give us a little bit of flexibilty in terms of how we allocate capital cost to that house by treating it as one £300k transaction (the houses are very similar but not indentical in size and state of repair)

Would appreciate any thoughts

Regards

by **mullet** on Fri Mar 05, 2010 10:18 am

On the basis of the limited information, you have bought two separate assets. It's easy to tell ...

- separate title at the Land Registry
- separate metering for gas, electric
- separate Council Tax bandings
- probably separate connections to the sewer
- could be sold separately without thinking about the other property save for the shared boundary.

The above list is not exhaustive, but if you have nodded five times then they are without doubt separate assets.

by **PlumsAhoy** on Fri Mar 05, 2010 10:38 am

Hi, yes more information needed!

They were constructed as individual houses but have since been 'joined' together by an interior doorway. There is only one set of services and meters entering the property and if you do a postal code search it comes up as one property. We have been advised that we will need to planning permission to convert it back to two seperate houses. They are however on seperate title deeds.

by **mullet** on Fri Mar 05, 2010 11:01 am

OK, despite the separate title now it sounds more like one asset.

If one was going to be sold and subject to capital gains tax then it would be a part disposal and there is a statutory formula used to apportion any expenditure shared between the part sold and the part retained. But it has the flavour of "an adventure in the nature of trade" and may be subject to income tax so different rules apply.

by **PlumsAhoy** on Fri Mar 05, 2010 11:13 am

Great, so am I right in thinking that the decision as whether to purchase as one transaction at £300k or two at £150k is somewhat trivial as the 'statutory formula used to apportion any expenditure' would likely split it at £150k each anyway as the houses are so similar?

Yes, am aware that depending on our approach (selling, letting, living there) it will affect CGT/IT/PPR etc. Initially had the intention to rennovate and live there (one house each) but are now considering our options as we got it cheaper than expected at auction.

Thanks for your help

by **Peter D** on Fri Mar 05, 2010 6:02 pm

To cover the option of you both living in the properties you need to each purchase your house in your name or they will not qualify as 'your' private residence for relief purposes. ( no CGT on disposal.) Regards Peter

by **mullet** on Fri Mar 05, 2010 6:05 pm

Great, so am I right in thinking that the decision as whether to purchase as one transaction at £300k or two at £150k is somewhat trivial as the 'statutory formula used to apportion any expenditure' would likely split it at £150k each anyway as the houses are so similar?

But that formula only applies if it is a disposal for capital gains tax. Income tax takes priority over CGT. And it would not necessarily split it 50/50 because the formula considers the value of the part retained and the consideration for the part disposed of.

Yes, am aware that depending on our approach (selling, letting, living there) it will affect CGT/IT/PPR etc. Initially had the intention to rennovate and live there (one house each) but are now considering our options as we got it cheaper than expected at auction.

You haven't said how long you were intending to live there, but if it was going to be only a short period to try and secure PRR - and particularly if you then move back to your current home - HMRC would inevitably challenge it if they picked up the relevant return for enquiry.

by **PlumsAhoy** on Fri Mar 05, 2010 7:42 pm

Great - thank you both for your help.

by **Peter D** on Fri Mar 05, 2010 7:52 pm

So tell us how long you were considering living there and what other PPR's you own and we can advice appropriately

by **PlumsAhoy** on Sun Mar 07, 2010 1:10 pm

So I currently live in a house with my partner which we own and my friend and his partner are currently renting.

Our initial plan as mentioned was to live there for the foreseeable future. However, as we purchased them cheaper than expected we are now considering renovating and selling (with the ultimate aim of being able to put the profits toward a bigger/better home).

Whether we sell or not our approach will be the same - for financial reasons we will live in the new house as soon as its habitable and let out our current home (our friends also want to move out of their rental accommodation as soon as possible to avoid paying rent).

If we do sell then I guess realistically it will be in around 9 months or so allowing for renovation time and time to find a buyer (having lived there for maybe 6 of those?). The most likely scenario would be that we would then have to find temporary alternative accommodation until we purchased our new home. This could mean living back with parents, renting or possibly moving back to our original home (depending if it was empty/tenanted).

I guess the tax implications will have an impact on our decision as most of us are higher rate tax payers.