This guide helps homeowners selling a property where a garage or outbuilding has been turned into a self-contained annex. It explains how HMRC decides if the annex counts as part of your home, what the Crippin case means, the possible tax outcomes, how CGT is calculated, and the 60-day reporting deadline. It doesn’t cover Stamp Duty or annexes built purely to sell separately.
Key Takeaways
Is Your Annex Part of Your Main Home or a Separate Dwelling?
Everything in your CGT position flows from this one question, so answer it first. In tax law, a home can be made up of more than one building. A detached annexe can still count as part of your home, provided it belongs to the main house and sits within its grounds. The test the courts use is whether the annexe is so closely associated with the main house that it forms part and parcel of it.
There is no single deciding feature. HMRC and the tribunals weigh all the facts together. The ones that matter are:
- How physically close the annexe is to the main house.
- Whether there is internal or shared access between the two.
- Whether the annexe has its own separate external entrance.
- Whether it has its own council tax band.
- Whether planning permission limits it to ancillary use, or instead allows use as an independent dwelling.
- Whether it has independent services, such as separate utilities or its own postal address.
- How the annexe has actually been used in practice.
Note
A separate council tax band doesn't make your annexe a separate property for CGT — nor does planning permission for independent use settle it. Both point one way but aren't decisive. What matters most is how the annexe was actually used.
When a Separate Annex Can Still Qualify for PRR: The Crippin Test
In the Crippin case, a tribunal looked at a physically separate annexe with its own entrance, converted into a three-bedroom flat capable of being a home in its own right. Family friends lived in it informally and contributed to running costs, but there was no tenancy agreement, and the family kept full access and stored their belongings there. The tribunal decided the annexe formed part of Mr Crippin's main home, so Private Residence Relief applied. The relief stopped at the exact point the annexe was advertised as a holiday let, because from then on it could no longer be treated as part of the home.
If your annexe is physically separate, Crippin shows what you need to be able to demonstrate:
- Regular, unrestricted family access to the annexe throughout the relevant period.
- No formal tenancy agreement in place.
- Personal possessions kept in the annexe.
- The annexe was never marketed or advertised as a rental or holiday let.
The protection ends the moment the annexe is marketed commercially. For any period after an advert goes live, that part of the property falls outside the relief.
So, keep evidence while you still live there: photographs of the interior, your utility arrangements, and any correspondence showing the annexe was used as part of the household. These are exactly the documents HMRC asks for when it looks into a PRR claim, and they are far harder to gather once you have moved out.
When CGT Applies to an Annex: Three Scenarios
Almost every annex sale falls into one of three patterns, and the CGT on the annex follows directly from which one applies.
Scenario | How the annex was used | CGT Outcome |
|---|---|---|
1 | Part of the main home throughout ownership, never let or used exclusively for business | Full PRR. No CGT and nothing to report |
2 | Part of the main home for some of the ownership, but let, used as a holiday let or used exclusively for business for the rest | Partial PRR. CGT on the proportion of the gain attributable to the non-qualifying period and the annex floor area |
3 | Treated as a separate dwelling and disposed of as a separate asset | Separate disposal with its own gain calculation. No automatic PRR unless you occupied the annex as your own main residence |
Scenario 1:
The clean case. The annexe counts as part of your home and was used as living space (or family stayed on informal Crippin-style terms while you kept access). The whole gain is relieved. No tax is due, so the 60-day deadline doesn't apply and you needn't tell HMRC at all.
Scenario 2:
Where most granny flats land. The test isn't whether a relative paid rent — it's whether you occupied the annexe as part of your own main home. Once a parent moved in and lived there independently, and you gave up day-to-day use, that part stopped qualifying, rent or no rent. Dependent relative relief only covers relatives in place before April 1988, and lettings relief now applies only where you share the space with the tenant — which a self-contained annexe almost never does.
Scenario 3:
A separate dwelling sold with the house means two disposals. The sale price and original cost are each split between house and annexe, usually by floor area, and the conversion costs reduce the annexe gain. PRR can still apply, but only if the annexe is a home in its own right, sits within the permitted grounds, and you actually lived in it as your main home.
How to Calculate the CGT on Your Annex
Two situations are treated very differently, so work out which one is yours before you calculate anything.
Exclusive non-residential use throughout
Mixed use over time
Get the situation wrong and the figure is wrong in one of two expensive directions. Treat mixed use as exclusive use and you overpay. Miss a reportable gain altogether and you face penalties and interest on top of the tax, because the 60-day clock does not wait for you to notice.
Worked Example: Annex Let for Part of the Ownership Period
Scenario: You bought your home for £400,000 in April 2015 and sell it for £700,000 in June 2025. The annexe is 20% of the floor area. It was let commercially for 4 of your 10 years of ownership and used as part of your home for the other 6, including the final 9 months.
Calculation:
- Total gain: £700,000 less £400,000 = £300,000
- Gain attributable to the annexe: 20% of £300,000 = £60,000
- Non-qualifying fraction: 4 years out of 10 = 4/10
- Taxable gain on the annexe: £60,000 × 4/10 = £24,000
- Less annual exempt amount of £3,000 (2025/26 rate, assuming no other gains in the year) = £21,000
- CGT at 24% as a higher rate taxpayer = £5,040
Result: A CGT bill of £5,040 on the annexe element alone, which must be reported and paid within 60 days of completion.
Note
The final 9 months exemption adds nothing extra here, because the annexe was already in use as part of the home during that period. If the gain straddles your basic rate band, part is taxed at 18% and part at 24%, so check the split-rate calculation before you file.
Worked Example: Annex Sold as a Separate Property
Scenario: The same sale, but the annex is assessed as a separate dwelling, so the proceeds are apportioned on floor area: the annex is 20% of the property, the original purchase price was £400,000 and the conversion cost £40,000.
Calculation:
- Apportioned acquisition cost: 20% of £400,000 = £80,000
- Plus conversion costs as enhancement expenditure: £40,000
- Adjusted cost base: £120,000
- Apportioned sale proceeds: 20% of £700,000 = £140,000
- Gain: £140,000 less £120,000 = £20,000
- Less annual exempt amount of £3,000 = £17,000
- CGT at 24% = £4,080
Result: CGT of £4,080, reportable to HMRC within 60 days of completion.
These figures are illustrative. The correct calculation depends on your specific facts.
Frequently Asked Questions
Yes, in two situations. If the annexe sits within the grounds of the main house and was used as part of your household's living space, relief follows automatically. If it's physically separate, the Crippin factors apply: unrestricted family access, no tenancy agreement, your possessions kept there, and never advertised commercially. Relief is restricted for any period of commercial letting or exclusive business use.
No rent doesn't protect you. If your relative occupied it as her own self-contained home and you gave up everyday use, that period is non-qualifying, paid or not. Dependent relative relief only applies where the relative was in occupation before 6 April 1988, so it rarely helps a modern conversion.
It's one factor among several. Permission for independent use points towards separate-dwelling treatment; an ancillary-use condition points the other way. Neither is decisive — HMRC weighs the planning position alongside layout, access, services and actual use.
Any restriction only relates to the period after the change of use. The adjustment must be just and reasonable, so the years you occupied the whole property as your home stay fully relieved — often cutting the taxable gain considerably.
Yes. If any CGT is due, UK residents must report and pay within 60 days of completion via HMRC's online property account (non-residents must report all UK property sales, even with no tax due). If PRR covers the whole gain, no report is needed. Missing the deadline triggers an automatic £100 penalty, rising with interest and further penalties the longer it runs. The gain must still go on your Self Assessment return as well.
Key Consideration Before You Sell
If your annex was ever let, used commercially or occupied by a relative as her own home, part of your gain is probably taxable, and the 60-day clock starts at completion, not when you get round to it. This is not a calculator question. The curtilage test, the use history and the apportionment method each move the final figure, and Crippin-style evidence has to be weighed, not plugged into a formula. The wrong apportionment costs you in one of two ways: you overpay CGT on the annex, or you under-report and HMRC adds penalties and interest to the bill. If your sale is approaching, or has already completed, here is how to get the calculation done and filed inside the deadline.
Disclaimer
This article is for general information only and does not constitute tax advice. Your circumstances may alter the outcome. Speak to a qualified adviser before acting.
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