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Hi there,

I'm at my wits end and wondering if anyone could advise/help if you've been in a similar situation. Our solicitors and HMRC do not have a definitive answer.

We are first time buyers and assumed we would qualify for SDLT relief up to £300,000. The property we are purchasing is £330,000.

We're purchasing a 1 bedroom ground-floor flat that is being sold as freehold (it also has a 57 year old lease which will be transferred to us but this is nil and void as we own the freehold too). The freehold means we will also be landlords to the one property above ours (a 2-bedroom flat across the 1st and 2nd floor).

There is a condition in the First-Time Buyers guidelines that we're not sure if we satisfy:

The first condition: Purchase of a single dwelling
Relief is only available in respect of the purchase of a major interest in a single dwelling. A purchase of more than one dwelling in a single transaction will not give rise to relief. It will be important in some cases to determine whether premises consists of one or more than one dwelling - It is a question of fact whether a purchase consists of one or more than one dwelling. A self-contained part of a building will be a separate dwelling if the residents of that part can live independently of the residents of the rest of the building, including independent access and domestic facilities.
See Chapter 4 for the definition of “dwelling”.
A purchase is a purchase of a major interest if the interest acquired is a freehold or leasehold interest; for this purpose, an acquisition (whether by grant or transfer) of a lease with less than 21 years to expiry from the effective date, is not treated as a major interest.

As we are purchasing the freehold that relates to the entire building and, thus, the flat upstairs (although we have absolutely no interest in that property) - does that rule us out for first-time buyer relief?

Obviously, as this is such a new scheme, everyone thinks this is quite an unusual situation that nobody seems to have encountered. Any help/advice would be greatly appreciated.

Thank you!

Whether first time buyers' relief applies depends on how the purchase is structured and who holds the existing leasehold and freehold interests.

1. If, unusually, the existing lease is collapsed first, so you buy one interest, the freehold, then the relief is not available at all. You are buying two dwellings in one transaction (even though one is subject to the long lease of the upstairs flat).

2. I would expect you to buy two interests. One is the leasehold interest where most of the value sits, the other is the freehold reversion. It is up to you afterwards whether you keep the lease alive or collapse it. On the face of it the leasehold interest is of a single dwelling, so you satisfy the single dwelling test for the leasehold interest.

However, you then run into another problem. There is a condition for the relief that the transaction is not linked to any other land transaction (with an exception for other transactions involving the garden or grounds). See FA03/Sch6ZA/para1(5). If you are buying the freehold from the same seller (or from a person connected to the seller) in a linked transaction the relief is not available because of the failure to meet this condition.

Thank you SDLT Geek. That’s what I had thought but our solicitors and HMRC are still not forthcoming with a decision.

Our solicitors are now concerned that we would have to pay a higher rate of SDLT upto £16,500. Do you have any thoughts on that given how the purchase is set-up? This is what our solicitors have said below.

However, it is possible that HM Revenue & Customs would treat the purchase in a different way to what we are expecting. Based upon the guidance issued for the purchase of additional dwellings, we think it is unlikely that HM Revenue & Customs would treat the purchase as the simultaneous purchase of additional dwellings, making the higher rate of SDLT payable, but without specific advice from the Stamp Office on this matter there is just no way to be sure. We would also point out that when we called the SDLT helpline to discuss the transaction, the telephone advisor suggested that this could be considered a higher rate transaction but then stated that no specific guidance had been issued for these circumstances, so he could not actually give any advice. We therefore want to highlight to you that in the event that HM Revenue & Customs treat the purchase of these 2 titles as the simultaneous purchase of additional dwellings, under higher rate SDLT, tax of £16,400 would be due.

I think our best bet is to wait for HMRC to return on our enquiry although they work to a 40-day turnaround which will probably result in the sale falling through anyway. Hey, ho...

It is clear that the higher rates will not be due. The “second dwelling” is presumably bought subject to another party’s long lease and so does not count under Condition C as set out in FA2003/Sch4ZA/para3(4).

Thank you. I think we're going to proceed to exchange contracts and await a final decision from HMRC in the hope that we qualify for the £1,500 rate or the £6,500 rate but not the higher rate of £16,400 having read the information you have directed us to as to not let the property fall through.

Your help was much appreciated!

PS. I'll post the outcome for anyone else in our situation.

I’d forgotten to come in and update on the outcome for this in case anyone else was in a similar situation. Having written to the HMRC specialist team, we finally got confirmation that common sense was applied and we were thankfully eligible for first time buyer relief. Thanks everyone for your advice!

Thanks for letting us know. Did you buy both the leasehold flat and the freehold interest in the whole building? Or did you just buy the leasehold flat in the end?