Another Annex Council Tax question

ForestPerson

We have a detached Edwardian garage (one room with open staircase to a low-ceilinged room above) in our garden, which was crudely converted into 'living accommodation' by our predecessors. It was first assessed as Band A for Council Tax shortly after we bought the property, and we have dutifully paid it ever since (11 years). The two 'dwellings' share utilities. We have never used the annex for domestic purposes, apart from using the fridge (having a fridge in a garage is quite normal isn't it?)

Other than the fridge, we use the annex exclusively to run a very small digital business which makes about £10,000 a year.  

We could take out the shower and kitchen equipment but we'd like to keep the toilet. If we did this, do you think we could claim it was business premises?  I think it would be such a low rateable value that we wouldn't have to pay anything at all.

Would we need planning permission to convert it to business premises?

Thanks in advance.

TheSpectator

Probably giving yourself issues down the line if you were to sell, the 'business premises' would be liable to capital gains tax.

lincroft1710

You would need planning permission for a change of use to business premises. If pp is given there is no need to remove shower or kitchen as it will cease to be a dwelling for CT purposes. If you don't get pp then continuing to use it for business purposes could see you served with an enforcement notice.

ForestPerson

Thanks!  That's a good point, which I hadn't thought of. But now you've got me wondering... We bought it as one dwelling, but then it gets assessed as two. Will that mean we have to sell it as two dwellings, in which case CGT comes into play anyway?

lincroft1710

Most annexes have a clause in the planning consent which states the annex cannot be sold separately from the main dwelling.

Sarahspangles

You might pay less in business rates than council tax but there will be a cost for the application. You’re not required to have planning permission to work from home so long as your business doesn’t change the character of the property/street. It could make eventual sale of the property more complicated too. There are pros and cons either way.

ForestPerson

As far as I know, there was no application for planning permission when the 'Annex' was converted into living accommodation; neither was there any building consent.

ForestPerson

lincroft1710 said:

You would need planning permission for a change of use to business premises. If pp is given there is no need to remove shower or kitchen as it will cease to be a dwelling for CT purposes. If you don't get pp then continuing to use it for business purposes could see you served with an enforcement notice.

Thank you. But how is using that outbuilding 'for business' different from using one's spare bedroom?

Sarahspangles

Presumably you've read all the gov.uk general guidance. https://www.gov.uk/guidance/understand-how-council-tax-bands-are-assessed and the links on home based businesses.

The VOA seem to pick up changes like this from property sales. They don’t increase council tax bandings for home improvements until the property is sold. Creation of a new property is normally dealt with immediately but in this case it’s been picked up after the event.

In your case if there was no planning permission or building regs then you’re potentially in a difficult position when you do want to sell. There’s now a fashion for buyers to ask for these, even though sufficient time has passed for the lack of consent to be unenforceable. In your case you don’t have the consents but the buyer will have to pay two sets of council tax. Did your solicitor explain this when you purchased, or did the valuation for council tax come out of the blue?

I don’t have an answer but these issues might suggest that registration as business premises is a better option than it initially appears.

Bookworm105

ForestPerson said:

lincroft1710 said:

You would need planning permission for a change of use to business premises. If pp is given there is no need to remove shower or kitchen as it will cease to be a dwelling for CT purposes. If you don't get pp then continuing to use it for business purposes could see you served with an enforcement notice.

Thank you. But how is using that outbuilding 'for business' different from using one's spare bedroom?

because it is a separate building
as such it would also be very easy for HMRC to make a case that you would lose private residence relief on that part of your property and thus indeed have to pay CGT on part of the money when you sell the property because there is no residential use of a separate commercial building

I disagree that voluntarily converting it to business use is a good move, unless of course that is the genuine usage and therefore what it should be 

lincroft1710

ForestPerson said:

lincroft1710 said:

You would need planning permission for a change of use to business premises. If pp is given there is no need to remove shower or kitchen as it will cease to be a dwelling for CT purposes. If you don't get pp then continuing to use it for business purposes could see you served with an enforcement notice.

Thank you. But how is using that outbuilding 'for business' different from using one's spare bedroom?

Because you would be using most/all of a residential property for business purposes