Homebuyers face 'massive difference' in property costs as rule change sees stamp duty tax rise this weekend

Stamp duty bills could double from this weekend as those buying houses with adjoined buildings will have to pay stamp duty twice and they won't be able to benefit from subsequent tax relief.

Stamp duty on residential properties can be as high as 12 per cent for the most expensive properties.

Jeremy Hunt abolished the relief in the Budget, claiming it was regularly abused.

Buyers could work out how much relief they would get from purchases by dividing the total amount paid for the properties by the number of dwellings, then working out the tax due on this figure and lastly by multiplying it by the number of dwellings.

The minimum rate of tax under the relief is one per cent of the amount paid for the dwellings.

However critics warned that this created a stamp duty loophole as buyers could purchase a home with a ‘granny annexe’ or other self-contained rooms that aren’t being used separately and present it as two properties to lower their bill.

Kundan Bhaduri, property developer at The Kushman Group said: “This was a loophole that has unfairly favoured developers and large portfolio landlords to the detriment of retail buyers and should have been removed a while ago."

Property investors have warned the abolishment of the relief will a massive financial affects as it will drive up the cost of homes with annexes.

The removal of MDR could limit the market for buying and investing in blocks of flats.

Industry bodies including the British Property Federation and investment firm CBRE have previously warned its removal could result in between 13,000 and 25,000 homes not being built.

The abolishment of MDR will raise £385million per year for the Treasury by 2028-29, according to official estimates.

A property with an annexe that costs £2million will pay an extra £68,750 in stamp duty once MDR is scrapped, according to tax advisers Blick Rothenberg.

Michaela Seager, of tax adviser RSM, said the tax change will mean a “massive difference” in cost for some buyers.

He said: “We had one case this week, where they’re trying to get a purchase over the line and about £30,000 of tax is at stake.

“We’re seeing a lot of people rush transactions through before Friday. May isn’t usually that busy for transactions. But I wouldn’t be surprised if it was because of this deadline.

“There may be a slowdown in sales of houses with annexes, and this may mean less houses going on the market if people keep parents in their properties rather than purchasing homes with granny annexes to keep them close by.”

Figures by RSM show that a homeowner moving to a £550,000 property with a separate annexe would now pay £15,000 in stamp duty but the bill could have been as low as £5,500 using MDR.

George Burnand, a partner at JM Chase, has also helped rush through a client’s purchase of a main house and secondary accommodation.

He said: “The stamp saving was approximately £80,000. “The scrapping of this relief is going to have an impact on the top end residential market and the prices buyers are prepared to pay.”

Stevie Heafford, tax partner at HW Fisher, says there has been an influx of people trying to complete or substantially perform the contracts before the deadline.

Heafford highlights that property investors who purchase six or more properties in a single a series of linked transactions will still be able to claim the non-residential rates.

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She added: “Whether or not this will mean that investors look to purchase more units than they might otherwise have done or whether it will have a detrimental impact on property investment full stop remains to be seen."

James Watts, of buying agency Prime Purchase, said he had completed on two properties this week for clients – having deliberately timed the purchases to benefit from MDR before it was scrapped.

Watt said: “One is four dwellings and the other is two, so that’s a considerable stamp duty saving of tens of thousands of pounds.

“Many of our clients have benefited from it, but it has been under consultation for a while so it doesn’t come as a big surprise.

“It has always been regarded as a nice little bonus rather than the reason why someone would buy more than one property.”