Stamp duty relief for the granny annex

Multi-generational living is an increasingly common option for families wishing to bring elderly parents closer to home. Yet many buying a home with a granny annex are missing out on valuable stamp duty land tax (“SDLT”) relief, says Jo White.

Buying a home with a separate annex for elderly parents or relatives often represents a significant and costly move.  SDLT will be a significant additional cost that buyers need to factor into their home buying budget.

There is, however, a valuable relief that can significantly reduce the SDLT payable – multiple dwellings relief.

Multiple dwellings relief is an optional relief that is often not considered by estate agents and conveyancing solicitors. To qualify, an annex must meet strict criteria. It must have a bathroom and kitchen area, its own front door, and have some privacy from the main house. It must be capable of being a separate dwelling.

An annex can be attached to the main house but must have a lockable door between the two properties. It is, however, easier to claim the relief if the annex is separate.

To illustrate the potential savings, assuming the normal rates of SDLT apply, someone purchasing a four-bedroom house with a one-acre garden that includes a separate annex that meets the multiple dwellings relief criteria, costing £1.4m. SDLT without the relief would stand at £83,750, falling to £50,000 with the relief applied.  Had the buyer acquired the property during the SDLT holiday period these savings will be even more significant!

Buyers also need to consider the 3% SDLT surcharge on second homes which may also apply.

The 3% surcharge when it was introduced in 2016 was labelled as a tax on granny annexes prompting the government to amend the rules and introducing the “Subsidiary Dwelling Test”.

This test also looks to the market value of the granny annex. If its market value is below one-third of the total purchase price it is considered ‘subsidiary’, meaning that the 3% surcharge is not applied.  If its value exceeds one-third of the total purchase price, the 3% surcharge may apply. The surcharge will automatically apply if the buyer is purchasing a second home.

Whilst the 3% surcharge is a costly addition, even if it does apply, the multiple dwellings relief can still be claimed and can reduce the SDLT paid. If the annex in the example above is more than one-third of the value of the purchase triggering the surcharge, SDLT of £125,750 will be payable, reduced to £92,000 with the multiple dwelling relief applied.

These reliefs, which can be claimed up to one year after the effective date of transaction (normally completion), are complex and have the potential to decrease or increase the amount of SDLT paid. Buyers should always take advice and guidance from a qualified tax specialist before claiming this relief.

If you have purchased a property where you believe multiple dwellings relief should have been considered, then act now before it may be too late.

The window for multiple dwellings relief may soon close. The government is holding a consultation on these reliefs and will report its findings a little later this year. Government consultations are usually a herald for a further tightening of the rules, so watch this space.

If you would like to discuss your SDLT position or need any further guidance, get in touch with our team or contact us.