Stamp duty confusion buying a house that is split as 2 flats?

[jane372]

Hello, I would be very grateful for any help. I'm interested in a £320,000 house which is currently split as an upstairs and downstairs flat. Each flat is registered for separate council tax. According to the estate agent there is a single freehold title that covers the whole property, but there are also 2 leasehold titles, (one for each flat) registered with HM land registry.
I would be buying the freehold title to the whole property (and the leasehold titles with it, I assume).
I do not currently own any other property (although I have done in the past). I plan to rent both flats out to begin with, but at a later date I will move into one of them and continue renting out the other.
I'm unsure how stamp duty would be charged on the purchase:-

Would it simply be considered like any other purchase: first £250,000 exempt, then 5% on on the remaining £70,000= £3,500 stamp duty to pay?
Or would I fall into the category of owning multiple properties by making the purchase? In which case, if both flats were worth £160,000, my purchase of 1 of them would be completely exempt; but my purchase of the second would would constitute a "second home", and would be taxed at the new 5% rate in it's entirety = 5% of 160,000 = £8,000?
(I would be buying the freehold title in a single transaction if that makes a difference?)

Or maybe I've got it completely wrong and the calculation would be something different altogether! My budget is very stretched on the purchase so the difference might affect my decision whether to proceed. I'd really appreciate any feedback. Thanks

[bd6759]

It’s a single transaction of two dwellings, therefore the whole cost will be liable to the higher rate, or it will not. There is no apportionment or splitting the cost.

From what you say, I thinly the higher rate will apply.

https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm09766

[jane372]

Oh dear, that's much worse than I feared! Thanks for the link to the relevant HMRC page. I'm going to post a follow up question about linked puchases on the Stamp duty forum page, and whether structuring the sale as two separate purchases of first one flat then the other might be a legitimate way to reduce the bill. Thanks for your help.

[Abradacabadus]

There are also rules about linked transactions

https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm30100

[someone]

(and the leasehold titles with it, I assume).

This is a very complex area of law and I'm not going to pretend that I know enough to comment on the legalities but a few points:

1. That "I assume" is scary! The freehold title to a property split into flats with leases over the flats can be worth anything from almost zero to the full market value of the property without any leases. This is not something you can be assuming but need to understand thoroughly.
2. There is complex rules about when leases collapse into the superior title. Sometimes they only disappear when action is taken, sometimes they disappear in law. I _think_ the automatic "disappear" in law only applies when the lease and the superior title cover exactly the same property, so it doesn't apply in your case but you definitely should seek advice because if the vendor holds the freehold and all the leaseholds then the leaseholds might only exist on paper anyway and you're buying a single property.
3. This is pure speculation. If the vendor is selling the freehold along with all the unencumbered leases over the freehold and there's only a single freehold title then it might be possible to arrange for the vendor to cancel the leases and sell the property as an unencumbered freehold title - in which case you'll be buying a single property. The cancelling of the leases is potentially a CGT event for the vendor but I can't see why it would affect their CGT bill. (I have absolutely no idea how this will interact with the council tax, for example).

Finally, be aware that most experts in leasehold law won't be able to advise on tax and most advisors on tax won't be able to advise on leasehold law. Your best bet is to find a firm that has experts in both - that way if they say "X will work and save you the 16K of extra SDLT" you'll have some hope of getting some compensation if HMRC disagree.
(Also note that any compensation if they get it wrong will depend on whether you would have proceeded anyway - if you will only proceed with the transaction if there's a way to avoid the 5% surcharge then you need to make that clear at the time you engage someone because otherwise the only compensation you'll be entitled to will be penalties due to paying the wrong amount of tax)

[someone]

Thinking again, I think I'm wrong about collapsing the leases would be a CGT event for the vendor. This is now tax, not legal, and perhaps one of the accountants here will chime in, but I think there's some law about you can't sell something to yourself, so it literally may just be paperwork to get the vendor to cancel the leases prior to selling the freehold. (I still don't know about the council tax situation)