HMRC clarified it did not want to “discourage” the use of granny annexes that supported elderly relatives living on the same site as the family home. Yet its proposals could cost relatives tens of thousands more in tax. It also admitted the plans would disadvantage buy-to-let investors building smaller portfolios. 

Jackie Hall, of RSM, a tax consultancy, said: “These proposals seem to unfairly disadvantage those buyers hoping to accommodate vulnerable relatives. It would be helpful if HMRC decided on an exemption which made it fairer for families in this situation.”

The consultation, which ends in February, could see the relief given only to buyers who intend to rent out or redevelop and then sell the dwellings.

Another proposal would mean only annexes valued at a third or more of the total property price would qualify for the tax loophole. 

Under the current rules, a buyer purchasing a £1.5m house with an annexe valued at £300,000 would qualify for the tax relief. For the purposes of stamp duty, the total property price would be divided into two dwellings both worth £750,000, with £27,500 of tax paid on each, making £55,000 payable in stamp duty.

However, under the new proposals the annexe would not constitute a second dwelling, because its value would be less than a third of the entire purchase price. The buyer would therefore not qualify for multiple dwellings relief and would be forced to pay £93,750 in stamp duty – an additional £38,750 tax bill.

Multiple dwellings relief was first introduced to encourage investment in the private rental sector and boost the supply of housing for tenants. 

However, HMRC warned it had become increasingly exploited by buyers attempting to use features such as garages and pool houses to reduce the stamp duty bill on their main property. In one instance a buyer claimed an en-suite bedroom, in a seven-bedroom house, was a separate dwelling because it had built-in wardrobes and an electric socket which could be used for kitchen appliances like a kettle and microwave.