Business

Government changes mind on 'granny flat' tax surcharge

granny flat in garden Image copyright Homelodge

The government has announced a surprise change in the tax rules for anyone buying a house that includes a "granny flat", or annex.

It follows criticism that many houses with small annexes would be liable for a 3% surcharge on Stamp Duty.

Since 1 April, anyone buying a second home has had to pay the higher rate.

Now the Treasury has announced a new set of rules, which will mean that fewer homes with annexes will be liable for the surcharge.

Any annex that is worth less than one third of the total property value will no longer qualify for the extra charge.

The Treasury described it as a change "to iron out technical unfairness".

Previously it said that only about 1,000 sales of homes with annexes a year would be affected by higher rate Stamp Duty. Now it says the number will be even smaller than that.

Jeremy Leaf, a north London estate agent, said that common sense had prevailed.

"The government was trying to defend the indefensible. How would a granny flat tax surcharge have operated? How would it be enforced? Who would carry out the valuations? And perhaps, more pertinently, how much additional revenue would it have raised?"

Refund

To be liable for the higher rate, annexes must also:

  • Be capable of being sold separately from the main house
  • Have their own entrance
  • Have their own water and electricity supply
  • Receive their own Council Tax bill
  • Be worth more than £40,000 on their own.

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.

So if someone buys a home worth £300,000 - with an annex worth £100,001 - they will face a Stamp Duty bill of £14,000. Before 1 April they would only have had to pay £5,000.

The government had been lobbied for a change by Sir Eric Pickles, the former Secretary of State for Communities and Local Government.

The Treasury said that anyone who had paid too much would now be able to apply for a refund.

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