Buying a Home With an Annexe? Find Out if the 3% Stamp Duty Surcharge Could Affect You

Natalie Briggs

Natalie Briggs, Conveyancing Executive at Spire Solicitors LLP, takes a look at the Stamp Duty implications when purchasing a property with an annexe.

What is an annexe?

An annexe is accommodation which is joined to and sold as part of a larger main building. It will form separate and additional accommodation to the main house and may be accessed internally through interconnecting doors or by its own separate external entrance.

How does the 3% surcharge affect me?

Following the higher rate of Stamp Duty Land Tax (SDLT) being introduced on 1st April 2016, it soon became apparent the rules didn’t work for self-contained annexes. The problem that arose was that individuals buying a property which included a self-contained annexe might be treated as purchasing two properties and would therefore have to pay an additional 3% SDLT on the whole purchase price. This was the case even if it was to be their only property. The Government agreed this was an unintended consequence of the new rules and they were quickly altered by an amendment made during the passage of the Finance Act 2016 on 15th September 2016.

Thanks to these changes, if you are buying a property with an annexe to replace your main residence, the higher rate is not likely to affect you. Under the new rules, the exemption applies in the following circumstances:-

  • The property must consist of two or more dwellings, which are in the grounds of a main property and;
  • The main property must be worth at least two thirds of the overall price. An example would be a house with an annexe attached which is being purchased for £600,000.00. To avoid the SDLT surcharge, the annexe itself must be worth no more than £200,000.00. If, however, the annex was worth more than this, then the 3% surcharge would be payable on the entire £600,000.00.

What if I plan to keep the annexe empty?

When calculating the rate of SDLT, it is not relevant how the annexe is to be used so an empty annexe will not affect the Stamp Duty calculations.

I already own a house in London and am looking to buy a house with an annexe for use in the summer months for my family. How does this affect me?

The 3% surcharge will apply in this scenario as the purchaser already owns another dwelling and is not replacing their main residence. The purchase of an additional property, with or without an annexe, will be subject to the additional 3% SDLT.

If you would like to discuss any points in this article further, please contact Spire Solicitors LLP on 01603 677077 for all your legal needs.