Tax implications of turning annexe into a flat for father-in-law

Bruce73

Hi

We have a separate outbuilding on our land (currently used as games room / storage) that we are looking to convert into a self-contained cottage for my father-in-law (own entrance, kitchen and bathroom). This will need planning permission to get the work done. My understanding is that the building will then become a separate residence and then be liable for its own council tax charge. We currently pay the top rate of council tax (c£3k p.a.) so I spoke to the local council to see what the impact on our ongoing council tax would be. They told me the following:

- Annexe would be liable for separate council tax charge (probably c£1k p.a.)
- there would be a 25% sole occupancy discount on this whilst my father-in-law lives there
- there would be no 50% discount for the occupant being a direct relative
- once my father-in-law moves out we would have to pay the full council tax on the annexe in addition to the existing top rate council tax on our home
- if the annexe was then vacant for two years after my father in law moving out, we would have to pay council tax at 150% on the annexe (to "incentivise" us to rent it to a tenant - which we don't want to do) - i.e. our council tax would be £3k + £1.5k !!

The impression I got was that after my father in law moves out, even if we were to rip the kitchen and bathroom out and try to make it non-residential, the council would resist this and still try to continue to charge us separate council tax.

Seems crazy that we would get penalised in this way for taking in an elderly relative.

Anyone come across this or have any advice?

Thanks

chappers

If you were to make it non-residential, then it wouldn't be liable for CT, however that change of use would require a further planning application and as you said the council may try to resist this in order to try and keep the property in the local housing stock.
Not sure what the planning laws are for turning a property into a non classified building.
May be worth spending half an hour with a planning consultant.
What about using the money to put a nice static caravan on your land for your father in law, it requires no planning so long as it is ancillary to your house, for example he uses it to sleep in, but for example takes meals with you in the house.
Just out of interest a self contained annexe is exempt from CT if the person living in it is dependent on you and a relative, not sure how that applies to a separate building though.

Bruce73

Thanks for the reply chappers.

When you mention a planning consultant do you mean someone in the council's planning department or are there independent planning consultants out there who could give advice?

We are trying to have a separate unit so that my father-in-law can retain his independence for the time being, plus he (and us) can retain a degree of privacy. It's a difficult one, as it appears as soon as it is self contained (with a separate kitchen)..... the tax consequences kick in. I believe this is the case even if the annexe is physically joined to the main house, particularly if it has a separate entrance as well.

Hadn't thought about the caravan option - but it probably won't be a preferred option for my father-in-law, as the self contained annexe would be larger and more comfortable.

The bit I am most concerned about is not being able to convert it back into a non residential building when my father-in-law no longer lives there. Not only is there the ongoing CT cost, but this could put off some potentially buyers of our house when the time comes to sell.

Part of me finds it hard to believe a council could block converting back to a non-residential when the out-building has always been part of the property and had only been used residentially by a direct relative. However, I didn't think they would try to levy 150% council tax on it if it is unoccupied for 2 years - so I am trying to get the facts as best I can!

booksurr

the Valuation Office Agency is the body responsible for allocating CT status, not your council

when you want the property delisted and integrated back into your own property as a "mere" outbuilding thereof it is the VOA who will make the decision and they have reasonably clear cut criteria for what constitutes a "self contained" building based on what is physically there. If you initially meet resistance then you simply take it through the VAO appeals process

read: https://www.gov.uk/government/publications/council-tax-bands-and-self-contained-units

take particular note of :
"You should be aware that the following alterations are unlikely to impact on the VOA’s decision on whether a separate area of living accommodation still exists:
- removing a sink without removing the drainage.
- removing a cooker without any other works".

and

"we have to look at what is actually there, rather than the way it is used. This means that even if an area of a house, flat or other domestic property which could be occupied separately is vacant and not being lived in, it will still require a separate Council Tax band."

chappers

Yes I did mean a private planning consultant, but booksurr makes a good point the VOA would be able to give you a more direct answer as to what they would expect you to do for it to be considered a change of use from residential.

The council tax exemption would only apply for a dependent relative, how dependent is defined is another matter altogether and would involve further investigation.

Bruce73

I have now spoken to the VOA. Got a different perspective from what I was told by the council.

The key really is the kitchen. If this is taken out (as booksurr notes above), then you can contact the VOA and they will then come to do an inspection and have the separate council tax band removed if it is clear the annexe is no longer capable as being used as a self contained accommodation unit. The local council cannot block this and no additional planning permission is required.

This is a relief to know that it the position can be reversed, as we didn't want to be landed with a separate council tax bill (at 150% for being vacant) on an outbuilding in addition to our house. Will of course involve some cost removing the kitchen, but at least the option is there.

Guest101

A council employee talking out of his or her... I am surprised!!