Best way to reduce costs on new house.

InformedAdvicePlease

Hi,

We have just bought a new house. It's a large house (4 beds with 3 bathrooms) with a self contained studio over the garage that isn't liable for council tax and a separate annex attached to the back of the house that IS liable for council tax.

There is only myself and my husband living in the house but we wanted it incase we have to take in any of our parents and our kids grandmother (blended family) in the future. The idea was to employ a full time carer, put them in the studio over the garage and then have the oldies live in so to speak.

My question is what do you think would be the best way to reduce tax and get the maximum gain out of this property. We definitely do not want anyone other than family living in the main house with us.

I called the council today and have written to them asking how i can lose the council tax on the attached annex. I am waiting a response.

I also called the tax office and asked about the "rent a room scheme" although as the studio above the garage isn't actually attached to the house the man said he didn't think this would be eligible. This very small studio is 227ft sq in total. It has a small bathroom with shower. The "kitchen" is a sink, room for a fridge and a microwave but that's about it.

I work at home a lot and would ideally like an office that i have to leave the house for albeit above the garage or round the back of the house. My thinking was that if the council say they can remove the council tax from the annex round the back of the house if i use it as a home office i could just do this and then rent the room above the garage out.

Any advice gratefully received especially on the grey area of the rent a room scheme. I wanted to rent it to mates ex for £291 a month (it has its own key meters) which would mean we wouldn't have to pay any tax and was a deal for him too but now, if i can't do that i would have to charge £450 which i think, although very good value where we live, is just too much!
Assuming they remove the council tax if i use the other larger annex as an office this is.

Our new mortgage is quite a bit bigger than our current one and i would like to know the best way to reduce it without worrying about the tax man so to speak.

G_M

The annexe is almost certainly going to remain separately taxed for CT. The 'studio' could be too if you're not careful!


If you rent the 'studio' out as a self contained unit ie the occupant has no access to the main house and does not share any communal areas (eg your kitchen) then he'll be a tenant with tenancy rights. Rent-a-Room won't apply and you'll need to read up on being a landlord.
** Tenancies in Eng/Wales: Guides for landlords and tenants

Skiddaw1

I agree about the annex. Unless something radical is done to effectively reconnect it to the house it'll remain a separate dwelling for Council Tax purposes so if you are going to rent out a part of the house I'd go with the annex rather than the studio.

InformedAdvicePlease

If we rented the Studio above the garage out to my mates Ex he would need to use our kitchen and washing machine etc as there isn't anything like that in the studio. Its literally just a very small room with a bathroom and a sink with room for a fridge for a kitchen.

I guess i will know more when the council respond to me re the annex attached to the house.

All of this makes me quite annoyed as we already have 2 other properties that we rent out to my step daughter and a very good family friend, just enough to cover costs, so they have somewhere to live. We don't make any money and our tax bill is minimal but we know they are looked after. Win win for everyone.

I wanted to do similar with this. Actually being naive i didn't even think that we would have to pay council tax on the one that is attached to the house!

I suspect it will be at least 3 years before we have to have the oldies. I hope so anyway as they are all doing well at the moment but the time is coming and i didn't realise i would have to pay for the privilege to prepare hence this post.

InformedAdvicePlease

Lets hope the council respond to me quickly and i shall post the response in here. I may even phone the tax office again and get them to put something in writing as the man said it was a very grey area...

Its so annoying though as i know my mates ex doesn't get that much money and if we could let him have it for £291 a month with no council tax that would be ideal. If i have to pay 40% tax, which i would, i will have to charge him £450 and whilst that's still a good deal in our area its SUCH a rip off!! Especially when the type of people that would want this are on low wages!

Thanks for your response :-).

I don't mean to put my emotive comments in as nothing anyone can do is there. Ie it is what it is and i love Ken Loach films lol.

G_M

InformedAdvicePlease wrote: »

If we rented the Studio above the garage out to my mates Ex he would need to use our kitchen and washing machine etc as there isn't anything like that in the studio. Its literally just a very small room with a bathroom and a sink with room for a fridge for a kitchen.

.

In that case it is more akin to the studio being a bedroom with ensuite belonging to the main house, and the occupant would be a lodger. Though you initially described it as "a self contained studio". So you need to be careful.

As a precaution, you could /should include some 'services' with the rent eg vacuuming/cleaning weekly, and/or changing bed linen. That strengthens the arguement in favour of lodger over tenant.


Clearly the annexe though, if rented out, would create a tenancy.


As you already submit annual tax returns, that aspect may not be an issue though, especially as you must be familiar with tenancies and the associated regulations.

InformedAdvicePlease

Thank you G_M. I could easily add laundry services and use of our oven. HMRC were so vague i won't be doing anything without getting written confirmation that its ok.

The annex i am tempted to knock a door in but i will wait to see what the council says re the council tax. i could easily get £550 a month for it but if you add council tax on top (£130 where we live) i just feel so sorry for the person that has to live there!!

I just want win win for everyone and hate to think of a person with not much money struggling to pay and not being able to save for such a small place..

sheramber

InformedAdvicePlease wrote: »

Lets hope the council respond to me quickly and i shall post the response in here. I may even phone the tax office again and get them to put something in writing as the man said it was a very grey area...

Its so annoying though as i know my mates ex doesn't get that much money and if we could let him have it for £291 a month with no council tax that would be ideal. If i have to pay 40% tax, which i would, i will have to charge him £450 and whilst that's still a good deal in our area its SUCH a rip off!! Especially when the type of people that would want this are on low wages!

Thanks for your response :-).

I don't mean to put my emotive comments in as nothing anyone can do is there. Ie it is what it is and i love Ken Loach films lol.

https://www.gov.uk/government/publications/rent-a-room-for-traders-hs223-self-assessment-helpsheet/hs223-rent-a-room-scheme-2019

When you can use the Rent a Room Scheme

You can use the scheme if:

you let a furnished room to a lodger
your letting activity amounts to a trade, for example, if you:
run a guest house
run a bed and breakfast business
provide services, such as meals and cleaning

When you cannot use the Rent a Room Scheme

You cannot use the scheme if the accommodation is:

not part of your main home when you let it
not furnished
used as an office or for any business - you can use the scheme if your lodger works in your home in the evening or at weekends or is a student who is provided with study facilities
in your UK home and is let while you live abroad

SmashedAvacado

If you make the property above the garage a holiday let, then you could apply business rates instead - and then apply for the small business exemption.

diggingdude

remember if a person is liable for council tax and lives alone they can claim the single person discount. is that factored into the costs?

lincroft1710

The council have no say in what is subject to a separate CT banding and what isn't. That is the province of the Valuation Office Agency (Eng and Wales) or Assessor (Scot).

If you do rent out the studio, there is an argument that it could be subject to its own CT band, but if it is then it is the occupier's responsibility to pay the CT not yours.