Changes to 3% stamp duty will help some ‘granny flat’ and holiday home buyers

Tue 7th Jun 2016

Jo Morgan, Associate and Chartered Legal Executive in Coodes Solicitors’ Residential Property team, comments on proposed changes to the Government’s latest changes to the new 3% stamp duty surcharge for properties with an annexe.

“Following the recent introduction of the 3% stamp duty surcharge on second properties we have had a number of questions about the implications for properties with an attached ‘granny flat’ or holiday home. When the changes came in on 1st April, it came to light that buyers of property with more than one unit would be treated as second home buyers and would need to pay the higher tax.

“With a number of rural properties in Cornwall having an annexe, such as a converted outbuilding that can be used for holiday lets, we have been concerned about how this will affect some of our clients.

“The Treasury has now announced that, at the end of June, it plans to change the rules so that the higher rate of stamp duty will only be applied if the additional home is worth at least a third of the total price being paid, is valued at £40,000 or over and could be sold as a separate residence. That means that for the majority of properties with an annex, buyers will pay the standard stamp duty rather than face the higher charge. However, where a home with an annex or cottage does qualify for the Stamp Duty surcharge, the higher rate applies to the value of the whole property, not just the annex.

“If, for example, the main property is worth £250,000 and a separate building is worth £50,000, there would no extra stamp duty to pay, because the total value is £300,000 and the annexe is worth less than a third of this. However, if the annexe is worth more than a third of the main property – for instance, the main property is worth £250,000 and the separate ‘granny flat’ is also worth £250,000, then the buyer would pay the extra 3% stamp duty on the value of the whole transaction – that is, £500,000.

“So, where does this leave those who have already paid the higher stamp duty on an annexe that will now be exempt from the surcharge? The Government has said that it will offer refunds backdated to the 1st April, so you should contact HM Revenue and Customs if you are in this situation. At Coodes we are keeping abreast of the changing legislation so we can offer you the most up to date advice.”

Tue 7th Jun 2016

Jo Morgan

Head of Commercial Property

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