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. However, experts say there is still confusion over how much tax will be paid on properties with separate annexes or holiday homes.
The new charge, which came into force on 1 April, means anyone buying a second property will pay a rate of stamp duty land tax (SDLT) that is three percentage points higher than the rate paid on a main home costing the same. The change adds £6,000 to the upfront cost of buying a £200,000 property if it is not being bought as a main residence.
The original 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 far more tax. A multiple dwelling relief was available, but even with this buyers would pay more tax than if they were just buying a single property.
After an outcry, the Treasury this week announced it was changing the rules. Under the changes, which have yet to come into law, the higher rate of SDLT will only be applied if the additional home is worth at least a third of the total price being paid. A government spokesperson said: “[The change] irons out a small, technical unfairness and will mean transactions including annexes will now be subject to the same rate of tax as a main residence. It ensures the legislation fits with the intention of how the SDLT higher rate should work.”
Johnny Morris, research director at Countrywide, estimates around 140,000 properties have annexes, with most not worth more than a third of the total value. “The change would seem to put the issue mostly to bed,” he says. He says the rule that properties worth more than that would attract the higher rate would close any potential loophole, “otherwise you could have someone converting a house to two flats and selling it to someone as a home with a built-in buy-to-let”.
However, Sarah Kelly, director of law firm Morgan Kelly, says there could still be problems around valuing the property. “If it’s got separate access that is a matter of fact, it’s straightforward – you can often tell from the sales particulars before you look. But valuing it for a separate sale isn’t as straightforward,” she said.
“The estate agent could tell you it was worth one amount, but when you’ve made an offer on the property you could find that you need to pay the higher rate.”
What properties are affected? Any that can be accessed separately and sold on their own. So a property with a converted basement with a separate entrance, or a farmhouse with a barn converted into a holiday let, will attract extra tax if the second property is worth at least a third of the transaction. If, for example, you are paying £450,000 for a house with a holiday let worth £160,000 the higher rate will be charged.
Is the higher stamp duty charged on both properties? Yes, but you can use something called multiple dwellings relief to cut the bill – you divide the total price by the number of properties you are buying and pay the higher rate on each bit.
In the example above, instead of paying the higher rate on £450,000, which would be £26,000, you pay the higher rate on two lots of £225,000. This comes to £17,500, which is still £5,000 more than it would have been before 1 April.
Who values the property? The Treasury says this would be done as part of the buying process, so when you get the valuation done for a mortgage or a homebuyer’s report you could get the surveyor to do it then. However, there doesn’t seem to be any obligation to do this, and it’s not clear who will check.
When do the rules change? It’s not clear when they will come into force, but the Treasury says anyone paying the higher rate now will be able to collect a refund.
