Converting an outbuilding for rental

CountryBath

Hi, I have a house in a popular rural area in north Wiltshire, close to Bath. We have an outbuilding that we would like to make some money from. We have three options: 1. holiday let (it's a bit near the house though & would prefer not to have people using our garden), 2. self catering accommodation targetted at people working here in the week (lot of demand for that here with MOD, AXA, etc) or 3. Split it into 2 ensuite rooms and run it as a night rental. We both work, but could provide a continental breakfast in rooms.

This last option is currently favourite. Several villagers offer occassional B&B and the going rate for a double room is £80 inc cooked breakfast. We could do a room service continental breakfast and room for £50-55 perhaps (feedback suggests that a lot of people avoid b&B's becuase they don't want to sleep/eat in someone elses house). With two rooms, even at 50% occupancy it could be good earner. Renovation costs would be £20-£25k, so we could get this back within a couple of years and then it's clear profit.

Anyway firstly any views on this concept? Secondly and my largest concern is that my mortgage broker told me that if our bank found out about this then they would cancel the mortgage and make us take a commercial mortgage at a higher rate. Also would we have to have the building established separately in terms of council tax, etc. Finally would we just have to set up a ltd company and run it as a small business?

Everyone who does it in the village just takes cash. However it is in their own house and they don't actively promote it, but take people through word of mouth and ocassional adverts e.g. for badminton horse trials.

I can sense a bureaucratic nightmare and want to understand this before I apply for planning permission.

NB. The whole thing would be a sideline in addition to our jobs. Unless it paid well enough for my wife to give up work.

Thanks for reading and all advice welcome.

poppysarah

CountryBath wrote: »

Everyone who does it in the village just takes cash. However it is in their own house and they don't actively promote it, but take people through word of mouth and ocassional adverts e.g. for badminton horse trials.

That must work out well for the economy ... people not paying tax on earnings... Good job we've not got a deficit to solve.

Are you prepared to also do cash in hand? Or would it linger on your conscience?

CountryBath

I am not suggesting that at all. I thought I made that clear. I am looking to set up something legitimate and I always pay tax. Thanks for your reply, although it sadly added little.

clutton_2

i think you need to know all your outgoings first of all... can you have a "What if ? conversation with your bank ?

Could you remortgage with a different bank ?

theartfullodger

CountryBath wrote: »

I am not suggesting that at all. I thought I made that clear. I am looking to set up something legitimate and I always pay tax.

Aye, right, obviously that's what I'd expected in the first place ... and then I guess my reaction to...

Everyone who does it in the village just takes cash.

- would be that "everyone in the village" declares all their income ...

As a decent law-abiding tax-paying chap perhaps you might help the exchequer raise more money to reduce our deficit by suggesting a few cases for investigation??
https://online.hmrc.gov.uk/shortforms/form/TEH_IRF?dept-name=TEH&sub-dept-name=&location=39&origin=http://www.hmrc.gov.uk

Cheers!

Artful

Planner

Lets not forget Planning Permission and Building Regs! Depending on how nice and rural the area is, the former maybe a problem!

westlondonbuyer

Your mortgage broker would benefit most from selling you a new mortgage, so I wouldn't immediately accept his advice. Running a Monday-Friday let, for example, would be subject to a licence of occupation, not a tenancy, because you would be resident on the premises. For your lender, that's no different than allowing you to have a lodger (ie no skin off their nose).

Have a conversation with your own lender and follow it up in writing. Contact your local Businesslink. Get some books out of the library. You have lots of options. You can even talk to the tax people on the phone - they are surprisingly helpful.

CountryBath

Thanks for the helpful replies.

Just for clarity to the two posters who appear a little bitter, I really don't know where this has come from. People in my village doing ocassional b&b's are unlikely to invest in machines to take card payments, or set up websites for something so irregular. They therefore take cash. Of course I have no idea whether they declare this. I was simply referring to the fact that I am looking for something more formal and regular. I apologise if this has caused offence, although I really can't see how or why.

The broker was referring to lenders in general, but I will contact them to get their views. Thanks.

I am in the process of sending a pre-planning report to the planners. Building regs would also apply, which is fine. I have had a surveyor 'round to assist with this.

It's the finance side of things that is complex with the rules regarding what is allowed and what is it. As I understand it if the rooms were in my main house, then it would all be simple.

lincroft1710

Check the VOA website regarding Council Tax implications or possibly even Non Domestic Rating liability, the rules on where the line is drawn have changed over the years and I'm not certain of the current situation.

G_M

Your lender will need to know.
Your insurer will need to know.
The council will need to know.
HMRC will need to know.

£80 per night ? Where do you live? You can get a pretty decent hotel for that.

Whether you choose to set up a Ltd company, a partnership or a sole trader company is a complex decision. See BusinessLink here.