Is creating a granny annexe a good idea?

Gardeningjen

We're considering converting 2 downstairs bedrooms in our house into a granny annexe, to be available for an elderly relative if they need it in the future.  It would include creation of a kitchen and bathroom and separate entrance, as well as a lockable interconnecting door to the rest of our house. The relative is still in their own home at the moment, so in the meantime we would look to rent it out either to a tenant or as an airbnb. What are the issues we should consider before we decide whether to create this annexe?  I understand it is possible that it may be classed as a separate dwelling for council tax, but would the council tax also go down on our house as we'd be losing 2 bedrooms?  If we rented it out, I know we'd have to pay income tax on the profit. And we might need planning permission to rent it out? And when we sell the property eventually there would be higher stamp duty because it has an annexe? Anything else we should be aware of?

dell12

I think it depends how far you go in creating a permanent separate dwelling. You should probably try to keep it as much a part of the existing property as you can.

Typically your mortgage company won't like two kitchens (assuming you have one and if they find out), nor will your home insurance (assuming you take it out).

NameUnavailable

I think the issue around council tax and it being a separate dwelling depends on whether or not you have that separate entrance of if it can be accessed without entering another room in the house. If, let's say, there wasn't a separate entrance and you had to go through another room to access the annexe then you should find it is still classed as part of your home (regardless of fitting a kitchen area).

Brie

separate council tax, separate utilities & water supply, separate tv license.  Mortgage might have to be changed.

also consider that what an elderly individual might need may differ from what is wanted by a tenant or for a AirBnB.    wider doors, rails, no rugs, less furniture or other trip hazards.

Hoenir

Might be an idea to cost the conversion. Economically might not make sense. When you come to sell the property might also make it far less attractive to buyers. Simply on the basis of what you've said two bedrooms doesn't sound very much living space for a totally self contained unit. . 

FreeBear

Self contained unit, you would have tenants, not lodgers. That comes with extra responsibilities and paperwork (Gas Safe cert, EICR, EPC, etc). You'd need to issue them with a S.21 to get them out unless they leave of their own accord. S.21 is rumoured to be removed if/when the government introduces a Renter's Reform bill later in the year.

Then there is the tax implications to consider - Income tax on the rent, and Capital Gains tax when you come to sell.

With two kitchens, potential buyers might struggle to get a mortgage, and you'd also be limiting the market appeal.

gwynlas

Creating a downstairs shower room as well as a utility room  would be an improvement to your existing home and should one of the rooms have French doors  allowing entrance/exit I'm sure hat this would be acceptable to a lodger.
You could rent this out under rent a room scheme without creating a seperate entity. Airbnb is a lot more work involving shorter stays and multiple interactions for possibly not much more money
An elderly relative might also appreciate this in the future.
Conversion into a seperate annex would involve a lot more work and bring into play unnessessary regulations

FreeBear

gwynlas said:

Creating a downstairs shower room as well as a utility room  would be an improvement to your existing home and should one of the rooms have French doors  allowing entrance/exit I'm sure hat this would be acceptable to a lodger.
You could rent this out under rent a room scheme without creating a seperate entity.

You still need to tread carefully so as not to inadvertently create a tenancy. For example, putting a mini-oven/mocrowave & kettle in the room (or utility space) so that the "lodger" doesn't need to share the kitchen. Putting a lock on the door separating the "annex" from the rest of the house.

RAS

I'm reminded of the guy were the previous owner set up the attic as a workroom with sink etc, maybe a loo. The lodger decided to use a microwave or rice cooker and the owner got a demand from the VO for a separate Council Tax account. Appeared a neighbour had spotted the cooking.

lincroft1710

Although a self contained unit will probably have its own CT band, if it is occupied by an elderly reasonably close dependent relative, CT is not payable and if it is let out on an AST (or similar) then the tenant is responsible for paying the CT. The CT band on the main house may be reduced, it depends.


Perhaps not easy to gauge, but in some respects it would be better to consider this nearer the time.


Main drawback in letting this out via AST, is that you may not be able to get vacant possession when you need it, plu all the other attendant problems of being a LL

lincroft1710

RAS said:

I'm reminded of the guy were the previous owner set up the attic as a workroom with sink etc, maybe a loo. The lodger decided to use a microwave or rice cooker and the owner got a demand from the VO for a separate Council Tax account. Appeared a neighbour had spotted the cooking.

Owner may have had notification of separate CT band from the VOA, but any demand for money would have come from the council and would be the "lodger's" responsibility as the resident.