‘Granny flat’ surcharge revised after Government U-turn

The government has changed the tax rules applying to homes which include ‘granny flats’, meaning that the majority of houses with small annexes will be exempt from the 3% Stamp Duty surcharge.

Following the introduction on 1st April of the Stamp Duty Land Tax (SDLT) surcharge on second homes, Treasury Secretary David Gauke announced that he had been made aware that the new rules might lead to some main houses with an annexe for older relatives attracting the higher rates of SDLT.

Speaking in the House of Commons, he advised that this was not the government’s intention.

“We certainly do not want to discourage people who wish to create an annexe for an elderly or disabled relative, providing them with support close at hand,”

he said.

Mr Gauke went on to tell MPs that an amendment to the Budget would be introduced to “ensure fair treatment of annexes” and that only a small number would be affected.

A new set of rules will now apply and any annex that is worth less than one third the total property value will no longer qualify for the additional charge.

To be liable for the higher rate, annexes must: have the potential to be sold separately from the main house; have their own entrance; receive their own water and electricity supply and Council Tax bill, and be worth over £40,000 on their own.

Where an annexe does qualify for the SDLT surcharge, the higher rate of tax will apply to the value of the whole property, not just the annexe.

In practice, this means that if a home buyer buys a property worth £300,000, where the annexe is valued at £100,001, the purchaser will pay a Stamp Duty bill of £14,000. Prior to 1 April the bill would have come to £5,000.

The Treasury has confirmed that anyone who has paid too much can now apply for a refund.

Former Secretary of State for Communities and Local Government, Sir Eric Pickles, who brought the issue to the attention of Mr Gauke, said:

“This is a great victory for common sense. Those who convert accommodation to offer a home to a relative, sometimes elderly sometimes with special needs should not be penalised.

“The government was very receptive to the suggested changes and I am grateful to them.”