Chancellor targets granny flats and annexes in stamp duty crackdown

JEREMY HUNT has imposed a “granny annexe tax” in a stamp duty crackdown that risks setting back home buyers by tens of thousands of pounds. From June, Mr Hunt said he will abolish multiple dwellings relief (MDR) – a scheme that has allowed those buying between two and five properties to pay less stamp duty. Homes with an annexe have always counted as two dwellings.

It means those purchasing properties with annexes to look after elderly relatives will no longer benefit from tax relief, incurring double stamp duty land tax bills.

In 2018, the Chancellor used a similar scheme to save £100,000 in tax by bulk purchasing seven flats in Southampton, but this separate tax break will remain.

Those buying six or more properties under the scheme used by Mr Hunt can still pay non-residential stamp duty rates, which are capped at just 5pc. Stamp duty on residential properties can be as high as 12pc for the most valuable homes.

Roger Holman, a partner at the accountancy firm Blick Rothenberg, said that the new rules will hit families planning to look after elderly relatives.

He calculated that a buyer of a property with an annexe that costs £2m will pay an extra £68,750 in stamp duty under the changes.

Mr Holman added: “It’s essentially a granny annexe tax. I would expect a lot of buyers will be looking to chip away at prices. A change like this can cause a lot of problems and has a trickle down effect. If the top-end properties stop moving, this can impact the rest of the market. It might also mean some homes, where granny is living in a fourbed, won’t be freed up.”

MDR was brought in to stimulate investment in the private rental market in 2011. But the Chancellor said that the tax relief scheme was being “regularly abused” and failing to galvanise investment in the way it was designed to.

Scrapping MDR is expected to generate £1.3bn in tax in the next five years.

The rule change will apply to transactions with an effective date on or after June 1. For contracts exchanged on or before March 6, the relief will still apply, even where completion of the purchase takes place on or after June 1, the Government said.