Stamp Duty on Annexes: How Does it Work?

Stamp Duty Land Tax (SDLT) can be a minefield at the best of times. It’s a confusing area of tax law that sees regular policy changes and affects a large number of people. If you’ve bought a house in England or Northern Ireland, you’ll have no doubt been affected.

Stamp Duty on Granny Annexes

Annexes are a common feature of many homes and can often have multiple different uses. From housing elderly relatives to holiday lets, the number of registered annexes in the UK is steadily increasing. Almost 1 in 8 British homes is set to feature one in the coming years according to a 2020 survey. One of the reasons for this increased popularity is its impact on SDLT. More specifically, how they help to reduce the amount paid. Annexes, or granny flats, don’t count as additional dwellings with regards to the 3% SDLT surcharge on buy-to-let properties and second homes. This essentially means that you’re entitled to both have your cake and eat it.  An annexe will count towards any relief you may be entitled to but does not count towards the surcharge. This allows you to claim relief without the risk of being penalised elsewhere. Remember though, these are subject to specific conditions being met 

How Granny Annex Stamp Duty Works

There are many forms of SDLT relief that you may or may not qualify for. The most common of which is relief for first-time buyers. The relief that relates to annexes is known as ‘multiple dwellings relief’ (MDR) and is calculated based on the individual price of a property. This tax amount is then multiplied by the number of dwellings present to give a final figure. It’s also important to note that there is a minimum payable amount; 1% of the total property price. 

What Counts as a ‘Dwelling’?

When we talk about multiple dwellings we are referring to separate buildings or self-contained areas of the same building that are suitable to living in. These come in various forms with the most common being annexes and flats. For the purposes of SDLT, these dwellings must reside on the same piece of land in order to qualify. You’ll also need to bear in mind that there are different rules should you own property in Wales or Scotland. 

How SDLT for Annexes Has changed

Originally, a person buying a property that contained multiple dwellings was liable for an extra 3% SDLT charge. This was applied to the whole price and placed on top of the existing SDLT due. This was the case regardless of whether or not the new property was replacing an existing residence and created confusion around which properties counted and which did not. Thankfully these rules were amended with a new test introduced. This test is applicable where a single transaction covers multiple dwellings. These new rules apply to the following circumstances: 

  • On making a reasonable allocation of the property’s price, at least two-thirds are paid for the main dwelling
  • The subsidiary dwelling is either part of the same building as the main dwelling or is on the same land as the main dwelling

It’s important to remember also that there is no legal requirement as to what the additional dwellings are used for. Nor is there any specific requirements around planning conditions regarding occupancy of said dwellings. CapEx Associates are tax experts with years of experience. Our team can help with all manner of inquiries including how to deal with SDLT refunds and other related queries.

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