SDLT for one house that is two flats.

snowdon19

I am interested in buying a property that is currently being used as two flats. It is made up of a small basement flat with separate entrance and a maisonette above, with its own entrance. Both have their own utilities and the stairs between the two have been removed. However, the owners are one family who have owned the entire property for decades and there is only ONE freehold, and also no leases exist. The family have been renting each flat out for many years. They are keen to sell the entire property as a whole, but I am concerned that this will incur the higher SDLT as despite my enthusiasm to revert them back to just one house, they are currently divided into a basement flat and a maisonette, so that is two dwellings, right? 

grumpy_codger

I no nothing about this, but .... https://www.google.com/search?client=firefox-b-d&q=Multiple+Dwelling+Relief+(MDR)

Bookworm225

so the freeholder does not live there themselves? 
The 2 flats have been let as independent dwellings - are they currently tenanted?
what is the council tax status of the 2 flats?
was planning permission obtained?

subject to the above, has the freeholder has been flying below the radar...?

Going by what you say it would appear there are 2 dwellings (" Sometimes it will be obvious that there are two dwellings, for example 2 flats in a building bought in a single transaction ")
SDLTM00410 - Scope: what is chargeable: land transactions: Residential Property–How many Dwellings? - HMRC internal manual - GOV.UK

Therefore the Higher Rate SDLT would apply.
SDLTM09766 - SDLT - higher rates for additional dwellings: Individuals – purchasing two or more dwellings - Para 5 Sch 4ZA FA2003 - HMRC internal manual - GOV.UK


However, you should take advice on whether the "subsidiary dwelling" rule could apply and thus avoid higher rate, but for that you will need separate valuations to evidence the 2/3rds 1/3rd ratio
SDLTM09755 - SDLT - higher rates for additional dwellings: Meaning of dwelling - further information - HMRC internal manual - GOV.UK

if you fail the subsidiary test and move into the property whilst the works are done you will be unable to claim a refund of the higher rate when the properties revert into a single dwelling - see example 9  
SDLTM09810 - SDLT - higher rates for additional dwellings: Condition D - further examples - HMRC internal manual - GOV.UK

if you move in once the works are complete, you might claim you have replaced the main home with a "single"  main home and thus be entitled to a refund. However, be aware that HMRC won a case in 2020 refusing such a refund, (but with different circumstances to yours). It would be wise to take legal advice if contemplating a refund claim to ensure your purchases and usage are done in the correct order to meet the replacement requirement for a refund. 
Moaref & Anor v Revenue & Customs (SDLT - relief from higher charge for replacement residence) [2020] UKFTT 396 (TC) (10 October 2020)

BTW - multiple dwellings relief (MDR) was abolished on 1 June 2024 so ignore @grumpy_codger's link
SDLTM29901 - Abolition of multiple dwellings relief for SDLT - HMRC internal manual - GOV.UK

snowdon19

Thank you @Bookworm225
The freeholder does not live at the property, and the basement conversion into a separate flat is 'historic'. The two dwellings have been rented out separately and are now empty. They do have separate council tax bills and utilities. They are definitely two dwellings as per the Gov.uk specifications that I have read following your link (thank you). The maisonette and basement flat have been separately valued and this does show that the maisonette is 2/3rds or the total price. Does this automatically mean that the basement flat is subsidiary? And does this automatically mean that I would only pay the SDLT due for purchase of the whole house (maisonette and basement, as one) if I purchased them together in the same transaction, rather than the higher rate due for purchasing them as two properties with the extra SDLT due because of purchasing a 'second' property? You mention seeking advice regarding subsidiary, who would this be from?   Is this something I would discuss with a regular conveyancing solicitor? Thank you again for your help.

Grumpy_chap

I cannot comment on SDLT in this regard.

If the one house has been divided into two properties following proper process, planning control, building regulations, then the re-combination of the two properties into one family home will require to follow proper process.  That means planning control and building control again.
Redundant utility supplies will need to be removed, again following proper process.

There is not necessarily the guarantee that planning permission would be granted to change two properties into one.  Even if the two properties were once one.  Even if the two properties are "compact".  Councils have targets on how many properties they manage to squeeze into their geographical footprint.  Reducing two properties to one immediately sets the Council one step back on that target.

eddddy

I know this isn't what you're asking about - but are you a cash buyer?

I doubt that any mortgage lender would allow you to do development project like this with a residential mortgage.

And without a track record in development, you might struggle to get development finance. And if you did get development finance, it might be eye-wateringly expensive.

Bookworm225

snowdon19 said:

Thank you @Bookworm225
The freeholder does not live at the property, and the basement conversion into a separate flat is 'historic'. The two dwellings have been rented out separately and are now empty. They do have separate council tax bills and utilities. They are definitely two dwellings as per the Gov.uk specifications that I have read following your link (thank you). The maisonette and basement flat have been separately valued and this does show that the maisonette is 2/3rds or the total price. Does this automatically mean that the basement flat is subsidiary? And does this automatically mean that I would only pay the SDLT due for purchase of the whole house (maisonette and basement, as one) if I purchased them together in the same transaction, rather than the higher rate due for purchasing them as two properties with the extra SDLT due because of purchasing a 'second' property? You mention seeking advice regarding subsidiary, who would this be from?   Is this something I would discuss with a regular conveyancing solicitor? Thank you again for your help.

that is excellent, subsidiary is determined by the value alone so make sure the separate valuations have credibility - belt and braces would be they were done by a registered valuer (chartered surveyor holding the RICS valuation qualification) and willing to certify their figure?

then your conveyancing solicitor (note*) simply needs to be told that the valuation is 2/3 and therefore you will be paying standard rate SDLT on the whole purchase price of the building as a whole.


(*) not all conveyancers are familiar with all aspects of SDLT so if they argue it is higher rate then point them at the above pages from the manuals (and invite them to seek further training!),

BTW - I have assumed you already own a dwelling and that it is your main home and you will sell it when purchasing this new one and therefore will a) not be increasing your property empire and b) (crucially) you will meet the "replacement" test for disposal of main home.
I will take as read that you do not own other dwellings anywhere on planet Earth which you do not live in yourself, 

snowdon19

Once again thank you @Bookworm225 for your help and information, we have options to consider and discuss. You are correct, this would not be part of an empire but a replacement of our main dwelling.