Homeowners could be owed tens of thousands of pounds over a stamp duty blunder.

Tax advisors say many homeowners who have an annexe on their property may have overpaid stamp duty at the point of purchase and could be eligible for a refund - but there is a word of warning

Homeowners could be owed tens of thousands of pounds over a stamp duty blunder. Across the UK, 10,000 homeowners with annexes on their property could have overpaid on stamp duty due to poor advice.
In Birmingham alone, it's believed 25 per cent of homeowners with an annexe on their property were not advised that they could have paid a reduced rate of stamp duty on their property at the point of purchase.

This is because properties with a self-contained annexe may qualify for Multiple Dwellings Relief, meaning a reduced stamp duty fee.

At present, there is a stamp duty holiday on residential properties worth up to £500,000. This is running from July 8, 2020 to March 31, 2021. Before it was introduced, stamp duty cost homebuyers a total of £13 billion a year. It's been estimated that more than £3 billion worth of stamp duty was overpaid in 2015/16 due to mistakes in advice, along with confusing and complex rules.

The confusion is likely to increase when the stamp duty holiday finishes next year.

Properties with an annexe have become a popular choice among buyers looking for somewhere with long-term flexibility.

According to classified property search engine Trovit, there are currently 1,019 properties with self contained annexes for sale in the UK, 7.3 per cent of which are in Birmingham. Across the whole of England and Wales the number of 'granny annexes' being built has increased by 16 per cent in recent years.

There are huge benefits to having a granny annexe. For example, the idea of having grandparents close by is an increasingly attractive option for many families, and equally, an annex has allowed young adults to move back home during lockdown, rather than spending money on renting expensive flat shares in the city. One lesser known benefit of owning a property with a self-contained annex is that you could be eligible for Multiple Dwellings Relief, meaning you could pay a reduced stamp duty fee.

Research carried out by Cornerstone Tax has found that a quarter of homeowners in Birmingham who have an annexe on their property weren't told about Multiple Dwellings Relief. This research demonstrates a lack of clarity in and around stamp duty land tax, both by the public and by the legal sector. Millions of properties across the UK could qualify for reduced stamp duty rates, if for example, they have a self contained side annex as part of the property. In these cases, solicitors have a duty of care to inform their customers of all potential stamp duty reductions, including where Multiple Dwellings Relief is available.

The mistakes being made are in almost all cases totally unintentional and otherwise made in fear of underpaying. Most legal professionals are ill-equipped to navigate the complex rules around it and need help. The law is incredibly complex and many advisors who help homebuyers evaluate how much they should pay are trained only to differentiate between residential and commercial property. They simply aren’t familiar with the intricacies of the law’s evaluation criteria, which has led to many being mis-advised unintentionally.

There are a number of other reasons why people have overpaid; it’s not always a misinterpretation of the 3 per cent surcharge. Stamp duty can be calculated on the Government website.

But there is a word of warning. Earlier this year, a tribunal ruled against a claim for Multiple Dwellings Relief because an annexe was connected with the main house internally by an open corridor. Financial Adviser reports that the tribunal decided the purchase, which included a main house and annexe, did not count as separate dwellings for the purposes of Multiple Dwellings Relief. The owners had appealed against HM Revenue & Customs after tax chiefs refused to repay £10,000 of stamp duty

About author

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David Hannah
Tax Specialist