Warning of end to tax relief on annexes

The recent consultation on reforms to Multiple Dwellings Relief hid a proposal to effectively triple the stamp duty on acquiring extended family homes, according to David Hannah, Group

Chairman of Cornerstone Tax.

Typically, a £500,000 home without an annexe will cost £15,000 in stamp duty but when an annexe is present, the tax falls to £5,000. HMRC have classified this as an “unfair advantage”.

Multiple Dwellings Relief was introduced to prevent unfairness when purchasers were buying multiple properties and to ensure that they only paid the correct amount of tax on each dwelling if they bought more than one.

David Hannah says: “When the three per cent additional homes surcharge was introduced in 2016, it was quickly pointed out that homes with annexes suffered a tax penalty on the annexe element because it was a ‘second home’.

“The Government moved quickly to exempt these from the three per cent surcharge by introducing a relief from it when the annexe was worth less than 30 per cent of the main house. At the time it confirmed that it would be eligible for multiple dwellings relief.

“In 2021 the HMRC received thousands of reclaims/claims from people who have bought these extended family homes, presumably to meet the social objective of caring for dependent relatives.

“Suddenly, HMRC decided that this is not fair. This is another example of the HMRC’s “newspeak”, when we think that the British taxpayer is having too much of a good thing, it is branded as ‘abusive’ or ‘unfair’ but the truth is that we were only getting our rights under the law.

“What this consultation probably means is that, as far as extended family homes are concerned, Multiple Dwellings Relief on an annexe is almost certainly about to end.”