Please Note: This Article is 4 years old. This increases the likelihood that some or all of it's content is now outdated.

With the imposition of the 3% tax surcharge on top of stamp duty for buy-to-let and second home purchases, homes with “granny flats” were to be caught in this tax net.

However, following a series of complaints and campaigning on the issue for some weeks by the Daily Telegraph, former Secretary of State for Communities and Local Government, Eric Pickles, has been quoted as saying the policy had now been changed.

A government has since announced the surprise change in the tax rules for anyone buying a house that includes a “granny flat”, or annexe.

Since 1 April, anyone buying a second home has had to pay the higher rate but now the Treasury has announced rule changes which will mean that most homes with integral flats will not be liable for the surcharge.

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Early indications are that the ruling will exempt any flat or annexe that is worth less than one-third of the total property value from the tax surcharge.

Describing the change as a move to “to iron out technical unfairness” affecting only about 1,000 sales of homes with annexes a year, according to the treasury.

Jeremy Leaf, a north London estate agent, told the BBC 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?”

Now the new rules would mean that an annexe can only be surcharged if:

  • It is capable of being sold separately from the main house
  • Has its own entrance
  • Has its own water and electricity supply
  • Receives its own Council Tax bill
  • Be worth more than £40,000 on its own.

The sting in the tail is that if a home with an annexe or cottage does qualify for the Stamp Duty surcharge, the higher rate will apply to the value of the whole property, not just the annexe.

So, quotes the BBC: if someone buys a home worth £300,000 – with an annexe 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.

Please Note: This Article is 4 years old. This increases the likelihood that some or all of it's content is now outdated.

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