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bigduckontax
bigduckontax, Accountant
Category: Tax
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Good morning,I have 3 inter-related questions relating

Customer Question

Good morning,
I have 3 inter-related questions relating to the changes to stamp duty legislation for second homes which come into force on 1st April. I'd be extremely grateful for guidance.
Background: I own the first floor property of a two story Victorian terraced house, converted into 2 flats in the 1960s. My neighbours are looking to move house and sell their flat to me. I intend to buy for cash (re-mortgaging against my own property where the mortgage is nearly paid off) - and as soon as possible convert the property back into its original single house. My civil partner is paying the 10% deposit for the ground floor property and I am paying 90% with the cash liberated from the equity I have in the first floor flat. Both my partner and I will pay back the re-mortgage on my first floor flat (with all necessary Deeds of Understanding re. % ownership in place).
Question 1: I am liable to pay 6% for a second property when I will be living in it from day one, even though I haven't converted it into one abode, i.e. it'll still have two leaseholds and 2 share's of freehold, all of which I will own? I find it hard to see this as a second permanent residence when it is more of an extension to my existing residence. However, that might not be how HMRC sees this.
Question 2: If I AM liable to pay 6%, would a refund be forthcoming once conversion and bringing together of leases etc. is complete?
Question 3: If I AM liable to pay 6%, could the downstairs flat be placed in my partner's name, given that we are both paying for it? He doesn't own any property and has never contributed to my mortgage on my flat. I'm not sure of the legalities of this - or any other tax implications.
With very many thanks for any light you can shed.
Best regards,
Jo
Submitted: 1 year ago.
Category: Tax
Customer: replied 1 year ago.
Please let me know if you need any more information. Thanks. J
Expert:  bigduckontax replied 1 year ago.
Hello J, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. Question 1. Stamp Duty Land Tax (SDLT) is levied on the consideration for the transfer of landed property. The higer rate applies to second homes. However Gov UK guidance on the subject states: 'The vast majority of residential property transactions will not pay the higher rates of SDLT. In particular, the higher rates will never apply where, at the end of the day of the transaction, an individual purchaser only owns one residential property (or, in the case of joint purchasers, that at the end of the day of the transaction each one of the joint purchasers only own one residential property).' Question 2. Eliminated by question 1. Question 3. Ditto. I do hope that you find my reply of assistance.
Customer: replied 1 year ago.
Hello, Keith.
I hope you're having a good weekend.
Thanks for your reply. I saw the words you've included above on the government website, but was still unclear as to whether my situation would mean I own two residential properties, or one. From the point of view of the two shares of freehold and the two leases, the properties are not one property. They may be two halves of one building, but I am concerned that they could well be technically viewed as two separate residential properties until we convert back into a house - something my partner and I may not be able to do immediately. The leaseholds need to be merged before we can start to move rooms around and open out the hallways etc. to merge the spaces, and there are implications for the re-mortgage of my flat to doing this merging. The bank has secured my re-mortgage against the leasehold for my flat, and that leasehold will cease to exist once it's merged with the downstairs lease. We couldn't get a mortgage for the downstairs flat as we intended to convert it back into a house for this very reason, hence the reason for the re-mortgage and cash purchase. We'll need a bridging loan to step off my re-mortgage, merge the leases, and then take a new mortgage on the combined properties. We'd still have two different council tax, electricity, gas and water bills in the meantime, as this is effectively a separate property we're buying.
My understanding is that (at least part of) the reason for this change in stamp duty is as a consideration against the fact that purchasers of second homes are depriving first time buyers from getting onto the ladder. We'd be doing that by buying the downstairs flat and converting back into a house at some point. We have no intention of renting the downstairs flat out, but would literally just take the doors off the two flats and live in both spaces for a while. But I'm really worried that we'll end up paying 6% on a technicality if these still being viewed as 2 residential properties.
Forgive me for asking, but how certain are you that we'd be viewed as having a single property? We'd be up a creek without a paddle if we went ahead with this purchase and then got hit with an extra £10k of stamp duty. We're on our tip-toes as it is to buy the downstairs flat.
I really appreciate your advice.
With very many thanks,
Jo
Expert:  bigduckontax replied 1 year ago.
Your original question indicated that you proposed to combine the two flats and return the house to its original state as one dwelling. Thus when completed that extra 3% second home SDLT would not apply.
Should you partner buy it on their own ticket so to speak of course the 3% levy would not apply.
I hope this helps, Jo.
bigduckontax and other Tax Specialists are ready to help you
Customer: replied 1 year ago.
OK. Thanks.
Jo
Expert:  bigduckontax replied 1 year ago.
Thank you for your excellent support, Jo.

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