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Self-contained annexes included in the purchase of a house have now been removed from the Government’s recently introduced 3% stamp duty land tax (SDLT) surcharge on buying “additional residential property”, provided certain conditions are satisfied (and provided the surcharge does not apply for other reasons, for example, the purchaser already owns another house).
The problem that arose under the new SDLT surcharge rules in their original form, was that individuals buying a property that included a self-contained ‘’dwelling’’, say, a “granny flat” or separate cottage, might have been treated as purchasing two properties so as to fall within the new surcharge on the whole purchase price. This applies even where the buyer is replacing their main residence.
The Government has agreed that this was an unintended consequence of the new rules. Under their proposed amendment to the new SDLT surcharge if an “annex” is “subsidiary” to the main dwelling then the surcharge will not apply. The amendment takes effect from 1 April 2016 (to tie in with the 3% higher rate SDLT charge coming into force).
Under the amendment the annex (dwelling A) is “subsidiary” to the main property (dwelling B) only if the following conditions are met:
If the purchase includes several such annexes then provided they are all “subsidiary” to the main dwelling, and in particular provided the purchase price for the main dwelling is still at least two-thirds of the whole price, then the surcharge is again dis-applied.
For example, a house which includes a self-contained studio (annex) and a separate cottage in the grounds is bought for £2.5m. The purchaser owns no other property. Provided the proportion of the total price attributed on a just and reasonable basis to the main house is at least two thirds of £2.5m = £1.66m then the studio and cottage are treated as subsidiary and the 3% surcharge does not apply. (The buyer may be entitled to multiple dwellings relief as two or more properties are bought in a single transaction).
However, if the studio and cottage are valued at more than one third of the price i.e. £833,333 then the buyer would pay the 3% surcharge on the total price of £2.5m.
In the above example, even if the purchaser owns another property, provided he is replacing his main residence then the surcharge is dis-applied. The surcharge would of course apply if the purchaser owns another property and is not replacing his main residence.
It is important to note that the new rule on annexes does not make any difference in cases where the surcharge already applies for other reasons in particular where:
The amendment leaves some questions, including the following:
For further information on the application of the Higher Rate please see our previous Briefing Note: Mind the Traps! Complex New SDLT Rules.
This article was written by Nigel Edge, Associate and Christian Massey, Partner.
For further information please contact Nigel on +44 (0)1242 246315 or email@example.com; or Christian on +44 (0)1242 246343 or firstname.lastname@example.org.