Combining two properties? Watch your tax planning

10th November 2020

Combining two properties into one new home requires careful tax planning

A recent ruling has cast new light on the current legislation surrounding the refund of Stamp Duty Land Tax (SDLT) across two properties, and provides guidance for home buyers considering a similar move.

The matter focused on two apartments that had been purchased two weeks apart, by the same buyers, who intended combining them into a single residence.  This was to replace their existing main residence, which would be sold at a later date.

The adjoining properties, numbers 31 and 38, were purchased in separate transactions and attracted the 3% SDLT ‘higher rate for additional dwellings’ (HRAD) surcharge on each.

The HRAD surcharge is applied to additional residential property purchased for £40,000 or more. Recognising a replacement home is often purchased before the current one is sold, the legislation typically allows for the 3% surcharge to be refunded where the new property replaces the previous main home, which is sold within three years of the new home being purchased.

The critical word here is property in the singular and not properties in the plural.

The buyers formally applied for a repayment of the surcharge after selling their previous residence on 5 June 2018.  After an initial enquiry, HMRC accepted the proposed refund for Number 31 but chose to reject the refund claim for Number 38.

In considering the application, HMRC mistakenly believed that the original main home was sold in June 2017, before the new apartments were purchased, and not June 2018 as was the case.  Despite this HMRC refused the repayment claimed in respect of Number 38.

The buyers argued that as their new dwelling was a replacement for their main residence, which had been sold within the three year deadline, then the higher rates did not apply.  They contested that the situation of the dual properties created a potential loophole in the legislation.

Close scrutiny for SDLT rules

The case ensured close scrutiny of the SDLT rules, with the buyers arguing that the formal definition of a single property dwelling was met, as it was a property “in the process of being constructed or adapted for” eventual use as a single dwelling.

HMRC argued that numbers 31 and 38 were in fact separate ‘single dwellings’, and the buyers could not determine which residence was their ‘main dwelling’ as required under Part 2, Paragraph 3(7)(a) of Schedule 4ZA of the Finance Act 2003, which prevented either being considered a replacement for their former residence.

Ultimately, the case came down to an interpretation of Part 2, Paragraph 5 in Schedule 4ZA of the Finance Act 2003, which clearly states that where two properties are acquired at the same time the transaction “cannot benefit from the reduction in the SDLT rates”, with the higher rates being applied to both properties.

The buyer’s appeal was dismissed, and the chargeable transaction covering property Number 38 was judged to remain a higher rates transaction.  The ruling also provided additional guidance to individual buyers regarding the order in which properties need to be bought and sold.

You may be wondering why the buyers went to so much trouble, but a review of the significant amounts which were payable will shed some light on this:  the first apartment, number 31 was purchased for £5,175,000, with the buyers paying £690,000 in SDLT.  The second property, number 38, was purchased together with an associated mews property for £7,400,000, requiring an SDLT payment of £1,023,750.

If you are considering a similar move or a property purchase of any description, please get in touch with Neil Faunch, a Director in the Commercial Property team here at Ansons, on 01543 267 191 or email

If you would like to be kept up to date with Ansons news please follow us on FacebookLinkedIn or Twitter.