3,000 families could save £1,000 a year under 'granny flats' tax break,

More than a quarter of a million families with annexes converted for more living space could have council tax bills slashed.

Such live-in annexes - where elderly relations often stay, hence their common 'granny flats' tag - are currently counted as separate dwellings with their own council tax bill additional to that on the main house.

But the Government is considering scrapping it, and even overhauling planning regulations and fees to make it easier for families to make more of these conversions, thus easing the demand for new houses.

Housing benefit: An annex often does not even have its own separate front door, but by definition has its own living space, kitchen, bedroom and bathroom

Communities Secretary Eric Pickles told the Daily Telegraph: 'We are keen to remove tax and other regulatory obstacles to families having a live-in annexe for immediate relations.

'We should support homeowners who want to improve their properties and standard of living. These reforms should also play a role in increasing the housing supply.'

The MP said it was unfair for households to be charged twice for council tax.

Local authorities can charge full rates on annexes, often working out at bills of more than £1,000 a year. An annex often does not even have its own separate front door, but by definition has its own living space, kitchen, bedroom and bathroom.

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It is estimated that as many as 300,000 households in England could benefit from the change.

The reforms are expected to form part of a package of policies to increase housing supply and address the shortage of affordable homes over the next two years.

First-time buyers are finding it increasingly hard to get onto the property ladder as banks tighten lending, and rent levels are increasing exponentially as that market hoovers up those without the funds for a deposit for a mortgage.

Annexes could provide a cheaper alternative for very young couples or professionals, and so the Government wants to make it easier for homeowners to convert garages - this could include easing planning laws, and binning expensive planning agreements currently needed to indicate how conversions will be used.

'Granny flats' are also a more affordable way for families to house and care for their elderly parents.