Stamp Duty On Granny Annexes

Introduction To Stamp Duty On Granny Annexes 

It is important to take stamp duty advice on the purchase of a property with a granny annexe so that you do not pay too much or too little stamp duty. There is a stamp duty relief for a granny annexe from the 3% higher or additional rates, and there is also a granny annexe multiple dwellings relief, so you need to know what can be claimed. Read on for granny annexe stamp duty, granny annexe multiple dwellings relief and advice on granny annexes generally.

Is Stamp Duty Applicable To Granny Annexes?

Yes, stamp duty applies to granny annexes, so the entire purchase price of a property with a granny annexe, including that relating to the granny annexe, will be liable to stamp duty.

If the granny annexe meets the tests for being considered to be a separate single dwelling, then you will be able to claim multiple dwellings relief from stamp duty (or “MDR”) on the granny annexe, and this means that you can reduce your stamp duty. If the value of the main dwelling is equal to at least two-thirds of the total purchase price of the property and as long as the granny annexe is within the same building or the grounds of the main dwelling, the 3% higher rates for additional dwellings will not apply to the purchase even though MDR can be claimed. 

Is Stamp Duty Always Payable On Granny Annexes?

Yes, if stamp duty is payable on the property, then the granny annexe will also attract stamp duty.

Does An Annexe Reduce Stamp Duty?

A granny annexe can reduce the stamp duty you pay on your purchase because you may be able to claim multiple dwellings relief. MDR allows you to split the purchase price equally between the two dwellings, work out the stamp duty on each and then add the resulting liabilities together to arrive at the total stamp duty payable. This means that you access the nil rate band of currently, £250,000, on each property and then two sets of progressive rate slices in Table A instead of just one on the entire purchase price.

How Is The Stamp Duty Calculated For a Granny Annexe?

Stamp duty is charged on the entire price of the property, including the granny annexe. However, if the value of the granny annexe is one-third or less of the total purchase price, then it will be ignored for the purpose of the 3% higher rates for additional dwellings as long as it is in the same building or grounds of the main dwelling.

The granny annexe can also mean that multiple dwellings relief can be claimed so that the stamp duty is calculated on the average price of each dwelling leading to less tax payable than if there was only one dwelling.

What if I want to convert my garage or outbuilding into a granny annexe? Does that qualify for a refund?

Unfortunately, the granny annexe needs to have either been in existence on the effective date of] at the very time of completion of your purchase or been in the physical process of construction or adaption as a granny annexe at that time, for you to claim stamp duty relief for the granny annexe. If not it may still be worth converting your garage or outbuilding into a granny annexe for stamp duty so that on a future sale, your purchaser could claim multiple dwellings relief from stamp duty on the granny annexe, and you might be able to achieve a higher selling price to reflect your buyer’s granny annexe stamp duty saving.

If you are intending to enter the property ahead of completion to begin the process of constructing or adaption for a granny annexe be very careful because HMRC may argue that your very entry to the property triggered substantial performance so that works started immediately after your entry and so cannot count for MDR purposes. In these circumstances you should take professional advice about how to begin the process of construction or adaption ahead of completion without triggering substantial performance.

What should I do if I need clarification on stamp duty on my granny annexe?

You should seek expert professional advice, preferably from a solicitor or direct access tax barrister with stamp duty expertise if you want accurate stamp duty advice on a granny annexe.

Is an annexe classed as a second home from a stamp duty perspective?

Yes, an annexe that meets the tests for a separate single dwelling will be classed as a second home for the purpose of the 3% higher rates of stamp duty on additional dwellings. However, if the value of the granny annexe does not exceed one-third of the total value of the main dwelling and the annexe, then the annexe by itself will not trigger the 3% higher rates.

If you wish to claim multiple dwellings relief, you need to be careful about treating a granny annexe as a separate dwelling where there is any doubt that it may meet the tests for being a separate dwelling and take professional advice before claiming the relief and reducing the stamp duty you pay or claim a refund after your purchase. HMRC are quite strict about what granny annexes qualify as separate single dwellings, and you can read their published views here.

Does an annexe need to be a second dwelling to qualify?

In order to qualify for the stamp duty saving on granny annexes under multiple dwellings relief or MDR, the annexe does need to meet the tests for a single separate dwelling, and you can read more about these tests here.

Is stamp duty on granny annexes the same across all regions and countries?

No, the above information relates to granny annexes in England and Northern Ireland. Granny annexes in Scotland and Wales are subject to different rules and you should seek advice from a solicitor or barrister with experience of these rules.

If you need stamp duty advice about granny annexes and multiple dwellings relief for granny annexes and the 3% higher rates on granny annexes, contact Patrick Cannon here.

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For professional and insurance reasons Patrick is unable to offer any advice until he has been formally instructed.