Combining two properties? Watch your tax planning

Combining Two Properties Into One Home Requires Careful Tax Planning

Updated: October 2025

A recent court ruling has provided useful guidance for homeowners and investors considering combining two separate properties into one main residence — particularly around Stamp Duty Land Tax (SDLT) and the Higher Rate for Additional Dwellings (HRAD) surcharge.

The case examined how SDLT rules apply when two adjoining homes are purchased with the intention of creating a single dwelling, and whether a refund of the 3% HRAD surcharge could be claimed once the buyers’ previous main residence was sold.

The background

In this case, two adjoining apartments — numbers 31 and 38 — were bought by the same purchasers just two weeks apart. The intention was to merge them into one home to replace their existing main residence, which would be sold later.

Both properties were bought in separate transactions, and each attracted the 3% higher rate surcharge for additional dwellings, as required under current SDLT legislation for residential property purchases over £40,000.

Normally, if you buy a new main home before selling your previous one, you can reclaim the 3% surcharge once the old home is sold within three years. However, this rule applies to a single property, not multiple purchases intended to become one.

HMRC’s position

After selling their previous residence in June 2018, the buyers applied to reclaim the surcharge on both new properties. HMRC accepted the claim for Number 31 but rejected it for Number 38, arguing that the refund provisions only applied to one property.

The buyers contended that both apartments together formed a single replacement dwelling, as they were in the process of being combined into one home. They argued that the legislation did not reflect this modern reality and should be interpreted accordingly.

The court’s findings

The Tribunal examined the case under Schedule 4ZA of the Finance Act 2003, focusing on whether two separate acquisitions could qualify as a single replacement dwelling.

It found that:

• Each apartment constituted its own “single dwelling” for SDLT purposes.

• The legislation specifically refers to a single property, not multiple properties.

• When two separate properties are acquired, the transaction cannot benefit from the HRAD refund — even if they are intended to be combined later.

As a result, the buyers’ appeal was dismissed, and the surcharge on Number 38 remained payable.

The case highlights the importance of purchase timing, transaction structure, and professional advice when planning to merge multiple properties into a single residence.

Why it matters

The financial stakes can be substantial. In this instance, one apartment was purchased for £5.175 million, attracting £690,000 in SDLT, while the second — including an associated mews property — was bought for £7.4 million, with £1.023 million in SDLT due.

Careful structuring and early tax planning can help avoid unexpected liabilities and ensure eligibility for any available reliefs or refunds.

Need advice on property transactions or SDLT?

If you are planning a complex residential or mixed-use property purchase — or considering combining adjoining properties — it’s vital to seek early professional advice to ensure full compliance with SDLT rules and to minimise risk.

Please fill out the contact form on this page, email info@ansons.law or call 01543 267191, and a member of our Property Team will get back to you.

Disclaimer: The contents of this article are for general information purposes only and do not constitute legal or tax advice. Tax legislation may have changed since publication. Always seek professional advice specific to your circumstances.