Income from an outbuilding

[EddyP]

Evening guys,

Unfortunately the wife and I have decided to divorce, I'd like to buy her out of the house but I'm just trying to make the finances stack up so that it's affordable.
We currently have an outbuilding that I could fairly easily convert into living accommodation, a small studio flat, however we're also on the doorstep of HS2 works so it would be perfect for HS2 workers for the next 10 years or so, this would give me some income to help pay off any loan/mortgage that I'm going to need to hang onto the property.
The question for the wise folks of PH is how to do this in the most tax efficient way, I really don't want to have to give away 40% of the rental income, which I'm expecting will be around £500/month.
Any ideas please?

Thanks

[GT03ROB]

First question would be do you have the necessary planning permissions to do what you want?

However after that look at the Rent-a-room scheme

https://www.gov.uk/government/publications/rent-a-...

[Prohibiting]

Can’t help with your question but just wanted to say sorry to hear about the divorce.

[EddyP]

GT03ROB said:

First question would be do you have the necessary planning permissions to do what you want?

However after that look at the Rent-a-room scheme

https://www.gov.uk/government/publications/rent-a-...

We are a listed building, so I need to apply for LBC to convert it from an "Upholstery workshop" to accommodation. Apart from that I'm not aware of needing any other permissions?
It's currently setup as a utility room so already has a sink, kitchen and other bits in it, this was done when we bought the place, I'd need to improve the windows, door, put in a bathroom/loo and make it all look nice.

I was aware of the rent a room scheme but wasn't sure if it would apply to an outbuilding, looking at that link I suspect if it's connected to the same services as the house i.e same water and electricity meter then I might get away with it being a "room".

[JQ]

EddyP said:

I was aware of the rent a room scheme but wasn't sure if it would apply to an outbuilding, looking at that link I suspect if it's connected to the same services as the house i.e same water and electricity meter then I might get away with it being a "room".

You won't be able to do this as it will be separately assessed for council tax, your tenant will have exclusive possession and won't be a lodger.

[_Mja_]

Do you have any land available for a static caravan? Not ideal but perhaps a way to generate some money.

[ReverendCounter]

'Sell' the outbuilding to a sympathetic third party for 50% of its full value. Hand over the 50% to your ex. Invest your own cash into the conversion, paying back the 50% from the income once it starts to generate it.

[EddyP]

JQ said:

You won't be able to do this as it will be separately assessed for council tax, your tenant will have exclusive possession and won't be a lodger.

The outbuilding is connected to other outbuildings that will remain my possession, i.e a barn, workshop and garages. Does that make a difference?

[Hub]

EddyP said:

We are a listed building, so I need to apply for LBC to convert it from an "Upholstery workshop" to accommodation. Apart from that I'm not aware of needing any other permissions?
It's currently setup as a utility room so already has a sink, kitchen and other bits in it, this was done when we bought the place, I'd need to improve the windows, door, put in a bathroom/loo and make it all look nice.

I was aware of the rent a room scheme but wasn't sure if it would apply to an outbuilding, looking at that link I suspect if it's connected to the same services as the house i.e same water and electricity meter then I might get away with it being a "room".

If it is self contained (kitchen and bathroom facilities etc) it will be treated as a separate dwelling and full planning permission will be required, which may be tricky - 'beds in sheds' are not usually seen as appropriate. Depends how big it is I suppose - government minimum space standards suggest about 37sqm internal space.

[JQ]

EddyP said:

JQ said:

You won't be able to do this as it will be separately assessed for council tax, your tenant will have exclusive possession and won't be a lodger.

The outbuilding is connected to other outbuildings that will remain my possession, i.e a barn, workshop and garages. Does that make a difference?

No. It would be like classifying 2 totally separate terraced houses as a single dwelling, just because you own both.

I'm not saying don't do it, my mother-in-law did exactly as you're proposing and it was a nice little earner.

I suspect you have 2 options -

1. let it on an AST - ultimately you'll run it as a buy-lo-let with all the taxes and safety responsibilities that entails. You'll need to inform your mortgage provider.
2. run it as an Air B'n'B, same responsibilities as above, with the potential for more profit, but considerably more management intensive.

You need to calculate all your costs and see if it stacks up. Also factor in that having a tenant as a neighbour is not always a positive.