Government U-turns on extra stamp duty for 'granny flats'
House buyers won’t have to pay the extra 3% stamp duty land tax (SDLT) on certain houses with an annexe, the Government has announced.
From 1 April, new rules came into force meaning new buy-to-let properties attract an additional 3% stamp duty on top of the existing rates for homes. See New stamp duty rates take force on second home purchases for more on this.
But speaking in the House of Commons this week, Treasury Secretary David Gauke said that he had been made aware that the current rules might lead to some main houses with an annexe for older relatives attracting the higher rates of SDLT and confirmed that this was not the government’s intention.
“We certainly do not want to discourage people who wish to create an annexe for an elderly or disabled relative, providing them with support close at hand,” he said.
What the new rules mean
What this means in reality, is that as was the case previously, there is no extra stamp duty to pay if the annexe is attached to the main property.
And now, separate annexes worth less than a third of the total property value will also be excluded from the stamp duty surcharge.
So if, for example, the main property is worth £250,000 and a separate annexe 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.
Anyone who has paid stamp duty on a granny annexe worth less than a third of the total property value between now and 1 April, should contact HM Revenue and Customs (HMRC) to get a refund.
‘I’m very pleased the Government has changed its mind’
Former Communities and Local Government Secretary Sir Eric Pickles, who has been lobbying the government on this issue, tells Moneywise: “I am very pleased the government has changed its mind.
“I do not believe it was ever the government’s intention to hit these annexes with the additional stamp duty. I fully understand that in practice it might only have been a small number, but it would have caused uncertainty in the sector. These are small but valuable contributions to take care of elderly relatives or members of the family with particular needs.”
Jeremy Leaf, a former RICS chairman and north London estate agent, adds: “Common sense has prevailed: the government hadn’t thought it through and now it has had a chance to do so, it realises that it simply wouldn’t have worked.”
A hugely unpopular tax paid on property and share purchases. Stamp duty on property is levied at 1% for purchases over £125,000 (£250,000 for first-time buyers) which then moves up at a tiered rate. For property between £125k and £250k you pay 1%, then 3% from £250k up to £500k and then 4% from £500k to £1m and then 5% for properties over £1m. But unlike income tax, which is “tiered” and different rates kick in at different levels, stamp duty is a “slab” tax where you pay the rate on the whole purchase price of the property. On shares, stamp duty is charged at a flat rate of 0.5% on all share purchases. Figures correct as of May 2011.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.