When does a 'granny flat' become a second home?

13 July 2016

Joan Foster

If you are looking for an excuse not to buy a property with an annexe (or granny flat) for your in-laws to live in, it looks like having to pay an additional 3 per cent stamp duty is not going to be one of them.

Just to recap, from 1 April 2016 an additional 3 per cent stamp duty will be payable on the purchase of a residential property where at the end of the day of the transaction the buyer owns two or more residential properties, including both UK and overseas properties. The higher rates of stamp duty will not apply only where the buyer is replacing a main residence that has been sold in the three years prior to the day of the transaction.

The original legislation setting out the provisions for the new rates did not allow for different levels of stamp duty to apply where a buyer acquires one or more dwellings in the same transaction. Therefore if the purchase of a property included an annexe, and the price apportioned to the annexe was more than £40,000 the whole transaction would be liable to the additional 3 per cent and not just the purchase of the annexe.

Whilst the legislation will continue to only allow one rate of stamp duty to apply to a single transaction involving more than one property, changes to be made will provide an exemption so that the additional rate of stamp duty will only be payable on the whole transaction where the annexe represents a third or more of the total property purchase. To qualify as an annexe there must be a separate access and it must have the usual features of a dwelling house such as its own kitchen and bathroom.

If you would like any more information on this issue please get in touch with Joan Foster or your usual RSM contact.