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The government has announced changes to the rules around the new stamp duty charge on second homes, after it emerged that people buying homes with granny flats would face higher tax bills.  There is still confusion over exactly how much tax will be paid on properties with separate annexes or holiday homes.

The new charge which came into force on 1 April 2016 means an additional 3% stamp duty rate will be added to any property purchased as either a buy-to-let or second home (above £40,000).  These rules stated that buyers of property with more than one unit, for example, a house with a granny flat or holiday home would be treated as if they were buying a second home and would pay more tax.

The Treasury recently announced it was changing the rules, stating that they had been unaware 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.

Treasury Secretary David Gauke said, “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”.

The announced changes mean that there is no extra stamp duty to pay if the annexe is attached to the main property, and also separate annexes worth less than a third of the total property value will also be excluded from the SDLT subcharge.  For example, if the main property is worth £250,000 and a separate annexe is worth £50,000 there would be no extra stamp duty charge, because the total value of the property is £300,000 and the annexe is worth less than a third.  However, if the annexe is worth more than a third of the main property, for example, the main property is worth £250,000 and the separate annexe is also worth £250,000, the biuyer would then pay the extra 3% SDLT on the value of the whole transaction – £500,000.

It is not clear when the rule change will come into force, but Treasury have said anyone who has paid SDLT on an annexe worth less than a third of the total property value between now and 1 April 2016 should contact HM Revenue and Customs (HMRC) to get a refund.

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