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Stamp Duty and “Granny Flats”

Posted: 5th April 2016
Written by: Matthew Butcher

Following the change to Stamp Duty Land Tax on 01 April 2016, it has been reported that properties with so called “Granny Flats” will be subject to the higher rates of tax for second and subsequent homes, with the annexe being classed as a second property.

Iron Gate Surrounding A Garden

In these circumstances, it would be necessary to determine whether a property containing an annexe constitutes one or more dwellings.  This should be a question of fact.  In the guidelines issued by HMRC before the new rates came into force, it was stated that:

“A self-contained part of a building will probably be a separate dwelling if the residents of that part can live independently of the residents of the rest of the building, including access and domestic facilities”.

If the annexe is not capable of being sold independently of the main property then the new tax should not apply.  Even if it is, the annexe would have to be worth over £40,000 for the new tax rate to apply.

There is also an exemption from the new tax rate if the dwelling being purchased is replacing the purchasers only or main residence.  However, this would most likely only relate to the main dwelling being purchased.  If the annexe meets the definition of a separate dwelling and is worth over £40,000, then the higher rate of tax may well apply to the annexe.

If the main property and the annexe are seen as separate dwellings and therefore taxable individually, it may be possible to take advantage of Multiple Dwelling Relief, which may help reduce the tax payable.

For further advice please contact Newtons Residential Property team