SDLT Relief for Granny Annexes. Are You Overpaying?

Author

Rohan Manro

A tax adviser, Rohan successfully completed and passed his final CTA examinations (Advisory & Application and Interaction for owner-managed businesses).

Stamp Duty Land Tax (“SDLT”) can be deceptively easy. Under the illusion that SDLT is straightforward, purchasers will not generally seek specialist advice.

Solicitors and conveyancers are more than qualified deal with most transactions. However, there are a number of common scenarios which call for specialist advice.

One such scenario is properties which contain more than one self-contained dwelling such as a ‘granny annexe’. In these cases, the SDLT position is fundamentally different and regularly results in purchasers overpaying SDLT.

Granny Annex SDLT – Example

Take, for instance, a property valued at £600,000. The SDLT due on this purchase would be £22,500.

If the purchase results in the purchaser owning an additional residential property, the 3% surcharge will apply resulting in an SDLT liability of £42,000.

Banding Non-residential rate Due 3% surcharge Due
125,000 0% 0 3% £3,750
The next 125,000 2% £2,500 5% £6,250
The next 400,000 5% £20,000 8% £32,000
Total Liability   £22,500   £42,000

Multiple Dwelling Relief & SDLT

However, if the property contains a granny annexe the SDLT treatment is different. if Multiple Dwellings Relief is claimed, SDLT is charged on the average price per dwelling. In this case, there are two ‘dwellings’ – the main property and the granny annexe – with the average price per dwelling being £300,000.

The total SDLT liability is then multiplied by the number of dwellings. The final result is that more of the purchase price is taxed at the lower rates.

Taking this approach, the SDLT liability would be £10,000, or £28,000 if the 3% surcharge is in point.

This is a saving of £12,500 and £14,000 respectively.

Banding Residential rate Due 3% surcharge Due
125,000 0% 0 3% £3,750
The next 125,000 2% £2,500 5% £6,250
The next 50,000 5% £2,500 8% £4,000
Liability per dwelling £5,000 £14,000
Total Liability   £10,000   £28,000

 

When can a claim for Multiple Dwellings Relief be made?

Calculating the relief itself is relatively simple. Deciding whether or not it applies is the more challenging point

The claim is available where a transaction involves two or more dwellings. The question is then what is a dwelling?

The legislation defines a dwelling in a circular fashion as ‘a building or part of a building suitable for use as a dwelling’

When is a building or part of a building suitable for use as a dwelling? Well, the legislation goes silent on this point. As such, it is a case of making a judgement based on the facts of each case and any relevant case law.

Some questions which you might want to ask include:

  • Does it have its own separate entrance?

 

  • Does it have its own heating, plumbing and electrical supply?
  • Does it have its own bathroom and kitchen facilities?
  • Is it connected to the main residence or completely detached?

Ultimately, one must make a judgement on the facts of the case.

How we can help

We regularly work with solicitors and clients to help them achieve the most efficient outcome. This usually involves reviewing the transaction and making an initial judgement as to whether there is scope for a claim.

Whether or not there is another ‘dwelling’ may be a marginal case with a potential case able to be made either way. We can provide comprehensive advice setting out the position, the ability to make a claim and making recommendations to ensure a successful claim is made.

If you have already purchased property and think you may have overpaid SDLT, we may be able to make a claim to recover any amounts already overpaid. Contact us for more information or be sure to read more about property taxes below.

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