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Understanding Stamp Duty

When selling any house, it is important to understand what obstacles may prevent a purchaser from making that all important decision to proceed.

Everyone knows that if you already own a house you will have to pay a 3% additional penalty if you buy a second home, however, in most circumstances this can be reclaimed if the second house is intended to be your “main residence” and the original house is sold in a certain time scale.  But what are the rules governing a house with a self-contained “granny flat or annex” (i.e. a second dwelling)?

In certain cases, a purchase of more than one dwelling will be treated the same as if a single dwelling had been purchased. This is the case if any of the dwelling purchase are “subsidiary” dwellings.*
In fact, what is often missed is that these “subsidiary” dwellings may actually reduce the overall stamp duty paid rather than increase it.
This anomaly in the rules is due to the ability to claim multiple dwelling relief and average the price over the two properties.


Let's look at an example:

Buyer A agrees to buy a house for £800,000 the stamp duty would be £30,000.
If the property was a second home, there is an additional 3% on top so the total duty to be paid would be £54,000.
However, (and this is the bit that is often misunderstood) if there is an annex and the main house is at least 2/3 the value of the whole, then the price may be averaged over the two properties with no penalty thus;
£400,000 x % = £10,000 x  2 (properties) =  £20,000 total SDLT payable
Potentially a saving of £10,000 for the purchaser or maybe an additional amount for the vendor—now is the time for that all important negotiation and an opportunity for you to show you know what you are talking about.

Of course all these matters need to be referred to the respective solicitors for verification but have they heard of this clause?
May be a tip that will earn you that all important positive review or personal referral.

* A subsidiary dwelling must be within the same buildings as, or grounds of, the principle dwelling, be purchased in the same transaction and the principle dwelling and associated garden and grounds must be at least 2/3rds value of the total transaction.


Note - although we believe the views expressed in this article to be correct professional advice should always be taken. No liability will be accepted where the reader claims to have acted on the comments contained herein.