Self contained Annex issues

Tomcat14

Hi everyone,

I’m looking for some advice regarding a self-contained annex on our property and a sudden Council Tax complication.

The Background:
We bought our home 2 years ago. It has a self-contained annex at the end of the garden (own kitchen, bathroom, and its own separate address suffix), accessed via the shared driveway gate and our garden. We didn’t look into it much at the time of buying, was told it was built around 15 years ago and previously rented out by the previous owners. We initially just used it for storage. Our long-term plan is to use it for our retiring parents maybe in few years time.

The Council Tax & Current Living Arrangement:
Shortly after moving in, we were surprised to receive a separate Council Tax bill for the annex. We accepted it, put our names on it, and paid it. Four months ago, a close couple friend of ours needed a place to live while saving for a house deposit (both work, I work with one of them). To help them out—and to help us cover the extra Council Tax—we let them move into the annex.

• The Financials: There is no formal tenancy agreement. They contribute £400–£600 monthly to help cover utilities and Council Tax. All still under our name.
• Utilities: All utilities run through a single meter from the main house and remain in our name.
• Taxes: I have been keeping records of their bank transfers to declare to HMRC (not sure yet how to do this but I have been advised need to do this by January)

The Problem:
We have just received a new heavy Council Tax bill from the local authority charging an "empty property premium" on the annex. When I contacted them to explain that the annex is occupied, they requested proof of residency and a copy of the tenancy agreement.

My Dilemmas & Questions:
I started looking into drafting an agreement to show the council, but I am now completely overwhelmed and confused by conflicting online information:

1. Tenancy vs. Licence to Occupy / Non-Assured Tenancy: An AI tool suggested a "Licence to Occupy" so it wouldn't breach standard residential mortgage conditions. However, online forums mention a "Non-Assured Tenancies" (since the utilities are shared and it’s on our grounds). What is the correct process for this situation?
2. Mortgage Breaches: Will formalising this arrangement affect the mortgage as the AI tool said?
3. The Best Solution: Is it safer to just ask our friends to leave to avoid a legal minefield? What are the steps if we have to do a tenancy agreement of some kind, is it too complicated?
4. If they leave: I ideally want to avoid this, but if there’s no other solution then I will need to have the difficult conversation. How do we handle the "empty property charge" going forward if the annex returns to being storage? And could we face penalties for the 4 months our friends have already spent without a formal agreement?

I am quite stressed about this and would appreciate any guidance please. Thank you!

user1977

The simplest solution is surely that the residents of the annex pay the council tax for the annex?

Tomcat14

https://forums.moneysavingexpert.com/discussion/comment/82147898#Comment_82147898

Thank you. If I do this, Will I not need to do an agreement with them?

user1977

It isn't normal for the council to want to see tenancy agreements. The confusion has possibly arisen because you seemed to have suggested there was an arrangement where the residents didn't pay the council tax, which obviously isn't the norm.

QrizB

I suspect the simplest short-term solution to the Council Tax problem is for the occupants of the annex to contact the council, tell them they're living there and register to pay Council Tax.

You can then agree with your friends how you adjust their monthly contribution.

Longer term you should agree a Licence with your friends so you all have a record of the terms of their occupancy, and you should keep in mind that once they move out you'll be back in the situation of having to pay the empty property premium (unless you get another occupant for the annex).

FlorayG

I would say first step is ask your mortgage provider if they allow you to let the annexe. If they say no, your friends have to leave. If they say yes, then you write up a formal tenancy and they pay the council tax.

A friend had a similar problem about council tax on an annexe. When the tenant left she had the outside door to it bricked up and made the only access to it through the main house. Council then accepted that it was no longer a separate dwellings and removed from it the council tax charges. Note the changes have to be clearly permanent; just putting bolts on the outside door won't cut it with the council

sherlock228

there are a host of issues here:

1. the annex is clearly "self contained" and therefore has quite rightly received its own CT band

2. What, if any, restrictions were placed on its use at the time it received planning permission?
If PP required it would not be unusual to have that restricted to occupation by family members only and an absolute prohibition in place preventing it being let to non family occupants. If such applied then council tax may have received the 50% rebate for such an annex.

3. if no planning permission restriction is in place, or if ye but it is now unoccupied, it has quite correctly received the empty home premium CT charge

4. as a standalone self contined building out in the garden it will remain liable to CT under the hierarchy of liability. By telling the council it is now occupied then the liability falls on the occupanys, not on the owner. Hence the council wants sight of the tenancy agreement so they can backdate the CT charge to the start of the occupation (and refund any overlapping payments already made back to the owner)

5. It is NOT STORAGE, it has its own council tax listing so will remain liable for empty homes until you make significant structural alterations to the building so that it is no longer physically able to be used as a self contained residence (no kitchen, no bathroom and that means actually removed, not just disconnected). The Valuation Office Agency would then need to do a physical inspection before telling the council re remove it from the CT register.

6 If it continues as a self contained annex then it continues to be liable for CT at the rate applicable to whatever the planning permission consent made it subject to: discount if occupied by family, or tenant liability if occupied by unrelated person, or empty home rate if unoccupied.

7 as a self contained building any (non family) occupant would fall under tenancy legislation, so renters rights act applies, full tenancy agreement required (not licence), rental income subject to normal taxation treatment (not rent a room treatment)

8. technically the mortgage lender would need to be informed it is let and may need to give permission for such use to avoid breach of mortgage T&C

Bottom line, you can't have your cake and eat it.
- If you want to receive money from them then you need to legalise the position. Formal tenancy, correct CT status and tax paid accordingly on your rental profit.
- council tax dept does not necessary work together with the planning dept so you may find yourself having sorted out the CT then being in trouble with planning. Check the planning consent before making a decision on what to do.

FreeBear

7 as a self contained building any (non family) occupant would fall under tenancy legislation, so renters rights act applies, full tenancy agreement required (not licence), rental income subject to normal taxation treatment (not rent a room treatment)

Add to that list - A valid EPC, EICR certificate, gas safety certificate if there is a gas boiler or cooker in there. Whilst a tenancy agreement is not absolutely essential, it is prudent to have one.

There is also a bunch of other stuff you need to do when taking in tenants (others will provide links). The rules vary depending on where you are in the UK (Scotland requires landlords to register I believe).

Tomcat14

Thank you all for your advice. Like I was thinking, it all seems very complicated. I am going to ask our friends to move and am thinking of converting it to non self contained annex. Going through all the hurdles seems very complicated and we are not charging rent so there’s no benefits going through all those hurdles. We can then use it for storage or as we need, and if our parents move in future.

I don’t want to brick up the entrance, am thinking if we take kitchen out? Can we take out the hob, fridge and washing machine, would that make it non self contained? And do we just call Valuation people? I am assuming I’ll have to keep paying council tax until then.

sheramber

I think you would need to remove any sink and oven, and remove all the bathroom fitments..

You can still live in it without a hob, fridge and washing machine.

A cool box , a slow cooker/ air fryer and using laundrette would work.

lincroft1710

You would need to cap off gas or electricity supply to the cooker plus remove the water supply to the sink and make good the walls. There is no need to remove any bathroom fittings. Perhaps check with the Valuation Office before you do anything as guidance may have changed.

There is a possibility (and I stress possibility) that the CT band of the main house may increase when the non self contained annex is merged with it.