As the cost of living and property prices continue to rise, granny annexes are becoming more and more popular. Adult children who can’t afford to move out are living in self-contained accommodation on their parents’ property, as well as older relatives who need a bit more support but still want to live independently.

If you’re considering a granny annexe for your home, read our guide to find out the costs involved and the potential tax implications before you make your decision.

How much does a granny annexe cost to build in the UK?

The cost of building a granny annexe in the UK can vary significantly depending on several factors, including the size, materials used, your location, and whether you add premium features or fixtures. On average, you can expect to pay between £80,000 to £100,000 or more for a high-quality granny annexe.

We’ve put together this table to help you compare a granny annexe with other forms of extensions and buildings:

Type of building	Average cost
Granny annexe	£90,000
Garage conversion	£37,000
Loft conversion	£30,000
Single-storey extension	£40,000
Two-storey extension	£60,000
Basement conversion	£56,000

This cost typically covers construction, labour and materials for the external part of the granny annexe, along with things like stud walls, plasterboard, sanitary ware and tiles. It doesn’t include painting and decorating or plastering.

These prices are averages taken from across the country. If you live in the south east or London, it’s likely that you’ll pay more than these averages, whereas those in the north of England, Scotland or Wales could pay less. Take a look at our table further down the page for a more accurate idea of how much you could spend in your local area.

What is a granny annexe?

A granny annexe, also known as a granny flat or annex, is a self-contained living space designed to accommodate an elderly relative or family member. These days, the term encompasses all accommodation that’s built on a property as independent living quarters while still allowing for close proximity and support from family members.

Usually, granny annexes include a bedroom, bathroom, kitchenette and living area. But if you’re building from scratch, you can choose the layout and size of your granny annexe and make it your own!

How big can a granny annexe be?

How big a granny annexe can be depends on the size of your property. The general rule is that the annexe can’t be bigger than the footprint of your main house, as the point is that the accommodation is ancillary to your main property.

However, you should also check the planning rules in your local authority. There may be restrictions on how big it can be, especially if you live in a conservation area or new build estate. It’s always a good idea to check with your local building control before you start any kind of construction work.

How to get planning permission for a granny annexe

If you plan for a friend or family member to permanently live in your granny annexe, you will need planning permission to build it. To get planning permission, make sure you have the following information:

• The overall size of the annexe in relation to your main property

• The size of your garden

• The reasons why you want to build an annexe

• Who will be using it in the near- and long-term

It’s always worth working with an architect or an extension builder who’s used to drawing up plans for granny annexes to ensure that you get through planning permission easily.

What is the granny annexe tax loophole?

The granny annexe tax loophole refers to a tax relief known formally as Multiple Dwellings Relief. This tax relief allowed people buying properties with granny annexes to only pay Stamp Duty Land Tax on the average value of the collective properties, rather than the total purchase price, as long as the main property is two thirds of the total value.

The government announced in the 2024 Spring Budget that the granny annexe tax loophole will be closed from 1^st June. This could mean that properties with granny annexes lose some value, as they no longer offer a reduction in stamp duty.

When you’re weighing up whether to build a granny annexe, it’s better to focus on you and your family’s needs over the potential resale value if you’re planning on using the granny annexe for your own family for some time before you sell.

Does an annexe increase council tax?

An annexe will increase council tax, but not by double. In 2014, the government scrapped the rule where two council tax bills were sent to the same home if there was a granny annexe on the property.

Now, as long as you your annexe is ‘in use’, i.e. someone is living in there full time, the annexe is eligible for a council tax reduction. Instead of paying a full council tax bill, the person living in the granny annexe will receive a 50% discount on their council tax bill.

Do you need planning permission to convert a garage into a granny flat?

Whether you need planning permission to convert a garage into a granny annexe depends on whether it will be used as a ‘habitable space’. If it will be used for sleeping, washing and cooking, then you will need to apply for planning permission. If your garage conversion will be used just as a separate living area or a bedroom for a family member, then as long as you don’t make significant changes to the exterior of the garage, you usually don’t need planning permission.

It’s easier to convert an integral garage into a separate living area without planning permission than it is a detached garage. In almost all cases, you’ll need to apply for planning permission to convert a detached garage into some sort of living space.

Can you claim VAT back on a granny annexe?

No, you can’t claim VAT back on a granny annexe. There appears to be some confusion over whether you can claim VAT back because there are different rules for self builds. If you’re building a new home on a plot of land, you are able to claim the VAT back on some materials used for the build. In this case, if you built a granny annexe at the same time as a new dwelling and were going to use this for a family member, you may be able to claim the VAT back on some materials.

However, if you are building a granny annexe on your existing property, you are not eligible to claim the VAT back on the materials used to build it.

If you’re unsure about anything to do with tax, you should speak to a financial advisor who should be able to give you the most up-to-date information.

Can I let out my granny annexe?

Whether you can let out your granny annexe will depend on the stipulations within your planning permission. If your local authority gave you permission to build the annexe but on the condition that you must not rent it out separately from the main house, then you can’t let it out.

However, if you don’t have those conditions in place, it’s generally allowed to rent out your granny annexe. You may need to apply for further planning permission, as being rented out separately to the main dwelling is technically a ‘material change of use’, so it’s always best to check with your local authority before you start letting out your granny annexe.

You may be able to use your annexe as a short-term holiday let on sites like Airbnb without it being considered a change of use. Speak to your local building control to see what your options are.

Does an annexe increase property value?

An annexe does have the potential to increase property value. The idea of an additional living space, and one where family members could live with a degree of independence, is highly attractive for many buyers.

To maximise the value your granny annexe adds to your property, you should ensure it is built according to all building regulations and is kept in a good state of repair. A well-maintained annexe is sure to impress potential buyers, while one that looks as though it has been forgotten about could decrease the overall property value.

Can a granny annexe be sold separately?

In most cases, a granny annexe cannot be sold separately. Most annexes are given planning permission on the proviso that they:

• will never be sold separately

• will never be rented out

• will be used by a family member

• have shared services to the main house

• have no separate access

This can make it difficult to get permission to sell a granny annexe separately. However, rules introduced in July 2018 made it easier to get these conditions removed, so you can sell your granny annexe separately.

You will have to make an application to your local authority to remove the restrictions on your annexe. Speak to a planning specialist to navigate this, as it’s a tricky part of the law.

Do you have to pay stamp duty on an annexe?

If you are buying an annexe as a separate single dwelling, you will be subject to the usual stamp duty land tax rules. Plus, now that the multiple dwellings relief is being scrapped, the annexe won’t reduce your stamp duty bill if you are buying a property that comes with an annexe.

Speak with a solicitor or specialist tax advisor to ensure you get the most accurate advice surround stamp duty and buying annexes.

If you’re ready to get a quote to build a granny annexe on your property, post your job on HaMuch now. We’ll put you in touch with local extension builders who will be happy to help.

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