Years of rising house prices have driven a growing trend for more than one generation to live in the same household. Often, it’s grown-up children who remain living with their parents until they have saved money for a deposit to buy their own home, and sometimes it can be elderly relatives who have downsized to live with family for care, company – or both.
Either way, buying a property with an annexe – additional self-contained accommodation – can prove a good way for extended families to realise the benefits of living in the same place, whilst also ensuring that everyone can enjoy their own space.
And there may be additional benefits to buying a property with an annexe when it comes to Stamp Duty Land Tax. This is because some properties with an annexe could qualify for Multiple Dwellings Relief.
Multiple Dwellings Relief allows the SDLT on the purchase of two or more dwellings to be calculated using the average value of the properties purchased, multiplied by the number of dwellings, rather than the total purchase price of all the dwellings, and this can lead to a significant reduction in the amount of SDLT charged.
When it comes to defining what constitutes ‘a dwelling’, HMRC guidelines state that a building or part of a building can still count as a dwelling if it is suitable to be used as such. This may be the case even if it is not currently being used or intended to be used in the future as a separate dwelling.
In the case of annexes, the house and annexe will probably be considered as two separate dwellings if each part is completely self-contained and each part has its own front door that is accessible without having to pass through a private living area of the other part to get to it.
However, it is worth noting that some properties with annexes may not qualify for Multiple Dwellings Relief if they are not considered to meet the required guidelines and so it is always important to seek specialist tax advice about a specific property. Once you have sought specialist tax advice, you may also want to instruct an independent valuation on both the main property and the annexe to ensure you are paying the right amount of SDLT.