Stamp duty question for adjacent properties

ghizar

Hi,

I'm new to the forum so please go easy on me!

I'm keen to understand the stamp duty impact of buying one of the two adjacent flats to me. Here's the scenario: I'm on the first floor and would like to buy the ground floor downstairs.

I have three questions:
1. If we were to buy the flat downstairs and then convert it into a combined property, would we pay stamp duty at the basic "single property" rate or at the enhanced "additional property" rate?
2. Same question as 1, but let's imagine that I rent out the second flat for 6/12/18 months before knocking them together (i.e. temporarily it is a buy-to-let before becoming my sole residence).
3. Same question as 1, but now let's imagine that the person I'm buying off is a relative. Is there any smart way of avoiding stamp duty? Is it always incurred through a change of title? Could we put it in a trust under a child's name?! It seems bonkers to pay the revenue 4-6% of the value when we're only trading between family members.

Any help would be much appreciated. Cheers.

Pixie5740

You're going to start the transaction with 1 residential property and end the transaction with 2 residential properties so you'll pay the additional SDLT surcharge. It doesn't matter if you then decide to turn one property into two, or let one out for a bit.

As for it being bonkers to pay HMRC SDLT when you buy a property from a relative, why should it matter if you are buying a property from a stranger or Great Uncle Bulgaria?

As for putting a property in trust for a child I'm not sure. Wouldn't that equate to giving tens if not hundreds of thousands of pounds away to save a few thousand in SDLT?

Have you read HMRC's Guidance Note on the SDLT surcharge?

booksurr

you are liable for the higher rate SDLT. SDLT is payable on purchase, not what you do, or intend to do, once an owner of it. However, notwithstanding they are relatives, the way to "avoid" SDLT is to pay less than the threshold for the higher rate, so pay less than £40,000 and no higher rate is charged. Of course that it a one time only payment. If you ever pay the relative any more money it becomes a linked transaction and so the higher rate kicks in.

So, "as it is just trading between family members" it does not matter how little you pay since the money remains within the family. So the smart thing would be to buy it for £1. End of discussion

PS - putting property into a trust "for the children" is an excellent way of paying thousands in tax since it gets taxed going in (if valued above £325,000) and the trust gets taxed on its value every 10 years as long as it remains in the trust and gets taxed when it comes out of the trust. As i say, an excellent idea.
https://www.financialplanning.org.uk/wayfinder/ask-planner-answers-putting-house-trust

G_M

You own 1 property.

You plan to buy a 2nd. What you subsequently do with the 2nd is irrelevant.

However, if you sell the 1st property within 3 years (and assuming it is your main residence, AND the 2nd property becomes your main residence) then you could reclaim the additional SDLT.

Who the seller is makes no difference. HMRC tax 'you', as an individual or 'you' as a married couple, not 'you' as a family or extended family.

I'll admit I'm not sure if the additional SDLT would apply if you were trustee for a child who owned the property. I suspect that it would, since children cannot be registered as owners so it would be your name.

But even if this would be possible there are significant implications to putting £X00,000 into a child's name, not least that you could not get it back, and would have to manage the trust in the best interests of the child and not in your own best interests.

Take legal advice, but I suspect the downsides and issues would easily outweigh the cost of the SDLT saving.

gettingtheresometime

Could you even do this from a structural point of view?

ghizar

Thanks all - very helpful and very prompt responses. It seems that SDLT at the higher rate is unavoidable.

To the first responder (Sparky), I can assure you that we are not flush with cash. We're just considering our options.

TrickyDicky101

You would need planning permission to combine the two residences - this is not a foregone conclusion so it would be good to ascertain in advance what the likelihood of obtaining this would be.

konark

Two small properties are always likely to be worth more than one large one so what your doing is likely to be uneconomic, and as already stated the council will need to give permission and they don't always like to give it as they will be losing council tax i.e two band A properties pay more than one band B or C.

rtho782

Also, these are flats, so who owns the freehold? Are the leases the same length? These sorts of issues may well prevent you making them into one residence.

GDB2222

You can get very helpful advice on this forum. But bear in mind that the legislation you are asking about was only finalised a few months ago, with many amendments before Royal Assent. Your question relates to an unusual situation, and it is unlikely that anyone here can give you definitive advice.

ghizar

Thanks again for comments. Really valuable point on planning approval - and I appreciate that's not a foregone conclusion.
This building contains a handful of flats, of which I own one. Thankfully I own a share of the freehold and would be acquiring the other party's proportionate share. I don't expect the other freeholders will have an issue but clearly majority consent would be required too.