Government drops 'granny flat' stamp duty rise

Chris Torney / 13 April 2016

Stamp duty increase on second homes will no longer apply to 'granny annexes' after Government bows to pressure from Saga and MPs.

Following pressure from MPs and Saga, the Government has backtracked on proposals that would have imposed a tax surcharge, potentially costing thousands of pounds, on “granny flats” and annexes.

In last November’s Autumn Statement, Chancellor of the Exchequer George Osborne revealed a significant increase in the level of stamp duty applied to purchases of buy-to-let properties and second homes.

As of the start of April 2016, the new rates are three percentage points higher than on residential property: so for a house bought for £200,000, the stamp duty has risen more than fourfold, from £1,500 to £6,300.

Paul Lewis explains the changes to stamp duty on second properties.

Changes would hit pensioners and their families

Originally, the plans would have also affected the type of small annexes attached to residential properties which are commonly used to provide accommodation for older relatives. 

Pensioner groups branded the changes ludicrous with Saga slamming them as economically illiterate. However, in the face of growing pressure, the Government has now made an amendment to the Finance Bill which will provide an exemption for this kind of dwelling, colloquially known as 'granny flats'.

Treasury officials have now said that, provided the annexe is worth no more than a third of the total property value, it will not attract the higher rates of stamp duty.

A quick guide to the basics of stamp duty.

Some exceptions

Certain types of annexe, will, however, be liable for the new increased tax rate. 

In order for a property to incur the extra stamp duty, it must be capable of being sold separately from the main house, it must have its own entrance, and it should also have its own water and electricity supply.

In addition, council tax must be charged separately to the dwelling, and it must be worth more than £40,000. 

Officials have confirmed, however, that the higher rate of duty will be applied to the whole property, not just the annexe.

What is multigenerational living and is it an option for you?

Victory for common sense

The changes mean that thousands of homes will no longer be at risk of incurring the extra charges.

Saga's director of communications Paul Green said: “This is a victory for common sense, Saga voiced concerns on behalf of worried over 50s and we are glad the Government have listened. 

“The Chancellor is right to act to ensure that families can be confident that they won’t be penalised for doing the right thing and looking after their parents at home.”

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