Reducing STLT by buying 2 flats in separate transactions instead of one?

[jane372]

I do not currently own any property (but have in the past). I am interested in a house that is currently split as an upstairs and downstairs flat. There is an overall freehold title covering both flats, and individual leasehold titles for both flats. The property is for sale as a single entity including both flats and all the titles. I've just learned that if I purchased it all in a single transaction then the whole £320,000 cost would be subject to the %5 surcharge, meaning an eye-watering total SDLT bill of £19,500.

Does anyone know if the sale could be structured as 2 separate (but linked) transactions (buying one flat first, then the other, including freehold title), thereby reducing the STLT bill? I've looked carefully at the worked example on HMRC's website for linked purchases, and it seems as though it would result in a significantly lower bill in my particular case. It would basically let me get most of the benefit of my £250,000 stamp duty exempt amount as someone who does not currently own any property. Would structuring the sale in that way be seen as completely reasonable or evasive by HMRC? Even if it was fine with HMRC, are there any other hidden risks doing it that way (being held to ransom in order to complete second sale, for example, or any capital gains tax problems perhaps in future?)

The frustrating thing is if I bought 2 separate flats from different people one after another I would get the first £250,000 on the first flat SDLT exempt, and would only pay the 5% surchase when I purchased the second one (because I would then own multiple properties). But if I want to buy 2 flats from the same person it can't be done in a simple way without incurring a huge bill. HMRC must have their reasons, but it seems punitive to someone in my situation.

If anyone has any knowledge or experience with this type of situation I would be hugely grateful for any advice. (I know that eventually I would need to pay for professional guidance but I'm not quite at that stage in the process yet, and any assistance now would be extremely helpful) Thanks

[bd6759]

The difficulty you have is that the property is listed for sale as a single entity.

If the vendor had listed both flats for sale individually, you’d have a better argument for saying they were not linked: a purchaser would not be compelled to buy flat 2 if they bought flat 1. But anything you ask the vendor to do now to facilitate this will become part of a single scheme of arrangement.

If it is your intention to merge the properties into a single dwelling, and live there as your main residence, there will be no CGT problems.

[jane372]

Thanks for the reply. Would it matter if the purchases are deemed to be linked (which they would be)? I've tried to follow the worked example on HMRC page for how linked purchases are taxed, and if I understand it correctly, then buying the property as 2 linked purchases would give me a much lower SDLT bill than having to buy it as multiple dwellings in a single transaction. The bill would be higher than if I just bought a single dwelling £320,000 house, but lower than buying a multiple dwelling £320,000 house in a single transaction. My worry is whether a buying scheme/plan of this type is seen as evasive or entirely reasonable. The thing that really annoys me is if I bought 2 flats from different people there would be no complication, but if I want to buy 2 from the same person the tax goes up! HMRC must have their reasons for this, but I'm not sure what they are!

[bd6759]

If transactions are linked, they are treated a single transaction. And a single transaction of 2 or more dwellings is caught by the rules highlighted in your other post.