Help! I don't understand stamp duty in this scenario.

[AudTheDeepMinded]

Hello, DH and I and a relative are looking to buy a property together that has a garden flat/ground floor annexe and a shared drive/garden. The property is marketed as one price but has two separate council tax bills and utilities. I had presumed that we would pay stamp duty once on the total cost. We had an initial consultation with a solicitor today and I am now very confused, can anyone clarify please?
I think he said that we may have to pay stamp duty twice, with a surcharge on the 'second' property and that we need to get a red book valuation done of the flat. If it is 1/3 or less than the total cost of the entire property this would not be the case. Oh, and also something about multiple dwellings relief. But I am flummoxed. I took notes but I still don't understand exactly what we have to pay. Does anyone have any knowledge they can share on this. The government website has only added to my confusion. I hate grown upping. Thank you.

Don't totally understand it, but there are some rules relating to self contained annexes that change stamp duty.
After we bought our property we were contacted by several accountancy firms who specialise in this area offering to recoup the over payment for us. We never pursued it as our annex as it currently stands self contained breach's the planning permission and we intend to reincorporate it into the property.

Two separate council tax bills seems to indicate two separate properties. So one becomes a second home with different rules? Can you not renegotiate so there are two prices and one of you buys the cheaper property? This will have more associated costs but you can then alter the ownership to all three of you after the purchases. Would this work?

Properties cannot be reincorporated as annexe is self contained so will always have separate council tax bill. However I think i understand that if occupied by a family member the bill is reduced by 50% so it is more equivalent to the council tax that would apply if it were a single property. If the flat is valued at less than 1/3 of the total price then we would have to pay two stamp duties but would qualify for some sort of relief to reduce the cost. I think!!

If it’s self contained, it doesn’t have to be separate for council tax. Or considered separate for stamp duty.

We have a self contained flat over our detached garage. It’s part of our single property. It has no separate council tax bill. I cannot conceive splitting it off and paying council tax separately. In fact planning permission said we couldn’t. However as a result of that, it’s part of our house. I think it’s odd to pay two lots of council tax on a single property. Self contained flat or not.

That's interesting because that would appear to entirely contradict what I have been told by the solicitor and read since online. I will have to delve further.

I don’t see the logic of the way your portentously purchase is set up. One property price should indicate one property. Two council tax bills is two properties. They must be separate to be taxed separately. Although - was one a shop? Was it commercial and then converted to residential? I would try and look at land registry and the history of why it’s taxed separately.

I know why it was separated, it was for commercial reasons as you rightly surmised. but from my reading it would appear that it is not possible to reverse this with regard to council tax.

potential purchase.

If you are buying more than one dwelling in a single transaction or related transaction you would be liable for the higher rate stamp duty which is levied on purchase of additional properties. The higher rate is standard stamp duty rates plus 3% on top. When considering whether the property is more than one dwelling you look at whether the annex is capable of being lived in by unrelated persons. To avoid penalising homes where annexes are designed for grannies or family members and are not entirely separated, the HMRC will not apply higher rate stamp duty provided the annex is ancillary to the main house and of a value of less than one third of the total price.

BUT assuming you are buying this property as an additional property and you are not selling your existing main residence the higher stamp duty will apply to you anyway because this will be a second property for you with or without the annex.

the next point is multiple dwelling relief which can be claimed when buying two or more dwelling units. There are 2 dwellings units here they don't have to be separate addresses or council taxed. To claim MD relief you divide the purchase price in half and pay stamp duty at the rate applicable on half the value then times that by 2. There is often a tax saving by paying 2 X duty calc on half value, than to pay duty on whole value because of how stamp duty is calculated. SDLT can be complex and you should ask your solicitor or tax advisor for specialist advice to make sure you get it right.

Thank you very much, we have a red book valuation booked for both properties and will then appoint a SDLT specialist to sort it out for us so that whatever we pay is correct for HMRC.

An you not ask about changing the commercial property to residential and amalgamating it as one property for the future. This often requires pp but might be better in future?

The business was an airbnb and I suspect the flat was created at the time the business was set up. My understanding from what I've read is that you cannot reincorporate the flat back into the address unless you make significant structural changes as it now has its own separate entrance, kitchen, bathroom etc. These we need to keep as it is where the relative will be living.