Garage converted to annexe with mother's money

mrsmerlot

Hello all,

We would like some neutral advice please. My husband and I and our two children live in a 4 bed detached house with an attached garage. My mother lives in Spain and has been wanting to buy a bolthole in the UK to live in when she is physically more frail. She has paid for the conversion and slight extension of our garage to create a 1 bed studio flat (cost £25,000). We have had a huge shed built in the garden to house garage contents, thereby losing about a third of our garden. We have also lost a well-used garage and a bit of our driveway. The idea is to rent out the annexe for a while until my mother needs it. If it rents out for say £600 per month, we are trying to work out whether we should split the rent between me and my mother. The services (water, gas and electricity) will be running off our house and we will be dealing with tenants, losing some of our garden to them (it will be fenced off), losing our privacy, have the hassle of tenants, etc. But should we get half or should my mother get more, as she paid for the construction of it? Also, if she doesn't rent it out, she is saying we would not be allowed to use it at all, say for guests, as it is "hers" and she is afraid we will "wreck" her haven. All feedback gratefully received. Thank you.

Errata

Who will inherit it?

jackyann

All into a separate account to pay for her care when she needs it.
If you don't have a good relationship with her, she won't be expecting any help from you - will she??

antrobus

mrsmerlot wrote: »

Hello all,

We would like some neutral advice please. My husband and I and our two children live in a 4 bed detached house with an attached garage. My mother lives in Spain and has been wanting to buy a bolthole in the UK to live in when she is physically more frail. She has paid for the conversion and slight extension of our garage to create a 1 bed studio flat (cost £25,000). We have had a huge shed built in the garden to house garage contents, thereby losing about a third of our garden. We have also lost a well-used garage and a bit of our driveway. The idea is to rent out the annexe for a while until my mother needs it. If it rents out for say £600 per month, we are trying to work out whether we should split the rent between me and my mother. The services (water, gas and electricity) will be running off our house and we will be dealing with tenants, losing some of our garden to them (it will be fenced off), losing our privacy, have the hassle of tenants, etc. But should we get half or should my mother get more, as she paid for the construction of it? Also, if she doesn't rent it out, she is saying we would not be allowed to use it at all, say for guests, as it is "hers" and she is afraid we will "wreck" her haven. All feedback gratefully received. Thank you.

Mmm, well, how can I put it?

Did your mother employ a solicitor to ensure that her name was entered on the Land Registry as one of the legal owners of 'The Gables', Rutlandshire (or wherever you are)? If not, then whilst she might have "paid for" the extension, she don't own nothin'. (*)

That sort of thing matters, because HMRC does not allow me people to allocate rental income to whomsover they fancy. It's the owners of the property that get taxed on the rent they receive.

And you did get planning permission for the conversion, didn't you? Who will be paying the council tax on the annexe if it's not rented out?

(* Well you could have all sorts of arguments about beneficial ownership, but that's another story.)

mrsmerlot

Hello,

I suppose we will. I am her only child and am her sole beneficiary in her will. I'm not thinking about long-term gain, rather the immediate situation. Thanks.

mrsmerlot

We will be paying all associated costs I suppose. And yes, we have full planning permission. The annexe is not totally separate to our main house, as there will be a connecting door and it is designed as more of an extension to our main home, so is not applicable for separate council tax or its own deeds. We have a good relationship but as money is tight for all parties (I know you're thinking 4 bed detached house yeah right but trust me), I can see this causing unnecessary disputes or arguments. Thanks.

mrsmerlot

Errata wrote: »

Who will inherit it?

Did I reply? I think so. I will inherit it, but that's years away and the house might be sold before then ,whatever. I will always see right by my mother, we are close, and I want this to be worked out properly and fairly. We are a busy young family and could do with the extra income from a split rental now though. We will definitely make sure all her needs are met as a when they are required, ie care, etc. Either I will care for her or make sure she gets top notch home help, wherever the money comes from. She would also like some money now so she can fulfil a few dreams while she is physically able to. Thanks.

Errata

It sounds like a good idea and should work well for everyone. The only thing I would suggest is independant legal opinion and advice for both of you. You'd both want the other to be properly protected, wouldn't you.

Paul_the_Painter

1. Opinion of an estate agent of the value on the current market of the house both with and without the annexe.
2. Difference gives you your "gain" on the deal (sad to say but most conversions don't add as much value as they cost)
3. Work out all DIRECT costs. Including council tax (if the annexe has a separate door, it's own cooking and bathing facilities, you will be liable for council tax, almost certainly band A)
4. Deduct the costs from the rent (leaving say £400-£450)
Then either:-
A. Split the proceeds 50/50 (assuming that your loss of facilities is offset by the gain in value of house, and you get all the proceeds when the house sells)
Or
B. Keep all the rent, but your mother gets a percentage of the value of the house when it sells (by the formula gain/current value)

Possibly C. Pass all rent to your mother (after costs, plus a small amount for admin) because that's part and parcel of being family.

It would be unfair of your mother to expect you to have the annexe, do all the admin, pay all the bills, not be able to use it, and see no rent, and then for her to expect a percentage of the house value when it sells.

ethank

Quite often families do this type of thing out of love and they end up making a massive change, without discussing all of the consequences.

All of things should have been discussed prior to the conversion.

lincroft1710

mrsmerlot wrote: »

The annexe is not totally separate to our main house, as there will be a connecting door and it is designed as more of an extension to our main home, so is not applicable for separate council tax or its own deeds.

If the annex has its own entrance, or entrance off a hallway or corridor of the main house, has facilities for food preparation, washing, room for living and sleeping and a WC, then a separate Council Tax band is applicable.