Granny Annexe - Financing / Tax implications

[PaulV]

Hello.

Due to my parents' failing health, we have worked out that a log cabin style home in our garden would be the best for them over the other options. They both have bought into the idea.

Mother has some dementia.
Father had a big heart attack on Boxing Day and is not going to get much better.

Their home is on the market, however they have had one viewing in three months despite two price drops.
We want to get them moved before winter as where they are is no longer suitable and is at least 45 minutes from nearest support, I am 1.5 hours away.

We plan to take an extension to our mortgage to cover the build cost, with the parents paying for rent and care to help cover the costs. Our current supplier is a Building Society and are reasonable with the concept.

The building should fall within permitted development. Myself and Brother have Power of Attorney for health and finance in place for them. The wills are in flexible family trusts.

What I am worried about is the possible tax implications of doing it this way. Is there any wisdom from someone familiar with this type of situation that would be able to give some pointers?

Many thanks.

[wisbech]

No, but obviously the rent will be taxable income, as will be the care (if they are paying you for care)

Any reason why they aren't gifting you the money for the lodge from the sale of their place, vs you borrowing it? Could be done as an 'advance' on the inheritance so your brother doesn't lose out.

[skeeterm5]

PaulV said:

Hello.

The building should fall within permitted development. Myself and Brother have Power of Attorney for health and finance in place for them.

I am not an expert by any means, but I don’t think you are correct about this, More than happy to be corrected but I would suggest checking it out.

Edited by skeeterm5 on Monday 19th June 18:27

[PaulV]

Gifting won't work as the house hasn't sold and is unlikely to in the time we need to get things moving. They don't have a lot of savings either.

Also we don't want to fall foul of the 'deprivation of assets' rules with the Council for when further care is required.

We have a planning person who we will get to go over the concept, the lodge will be built on piles, and will be designed to comply with the rules.


Thanks.

[wisbech]

Any reason they have to pay you rent, vs just gifting the expenses to you? Are they insisting on having a proper tenancy agreement? Rent is taxable, gifts wouldn’t be. Plus I can’t imagine you neighbours or the council will be that pleased by you building a rental apartment in your garden, so I can see a number of reasons for it not to be a renting situation

Ie a lodge may be permitted, but not if it has a kitchen and a bathroom. ISTR it must be incidental to the enjoyment of the main house, which self contained accommodation would not be

[PaulV]

I guess it doesn't have to be 'rent' as such, we are just wary of stepping on the landmines that seem to get some people.

[h0bbsy]

Also worthy of consideration is council tax however you should be ok as it's a dependent relative. Future use eg for Airbnb maybe not so much.

[MaxFromage]

I certainly am no expert on care providers and deprivation of assets, but if they gift you the money each month, care providers many well be interested in this loss. A fair rent, whilst taxable, wouldn't appear to cause the same problems.

[OzzyR1]

PaulV said:

Gifting won't work as the house hasn't sold and is unlikely to in the time we need to get things moving. They don't have a lot of savings either.

Also we don't want to fall foul of the 'deprivation of assets' rules with the Council for when further care is required.

We have a planning person who we will get to go over the concept, the lodge will be built on piles, and will be designed to comply with the rules.


Thanks.

Work in construction but not in this sphere.
A "standard" granny annexe has no chance of being deemed permitted development. A separate habitable dwelling with sleeping quarters will always require planning permission.

If you went that route & obtained planning permission, there would likely be caveats on the annexe that will restrict occupation to members / guests / dependents of the household which would prevent any separate sale of the annexe as a stand-alone dwelling in the future.

You mentioned log-cabins which drew attention as they aren't usual in the UK. Can only think you are trying to use the Caravan Act to swerve planning and state the annexe as a temporary structure,

If you are deep piling for foundations as your OP, this contradicts any temporary structure claim.

You could use helical screw piles which could be deemed as temporary: https://www.ukhelix.com/

I'm no expert, but please meet a local architect or planning consultant before going further

[Equus]

PaulV said:

The building should fall within permitted development.

No, it won't: as above, you will need Planning Permission.

You will also require Building Regulations approval, regardless of size (again, because it includes sleeping accommodation), and this is not straightforward to acheive on log cabins, because of the rules around insulation and external fire spread.

[Bakazan]

You might also want to check out the capital gains tax implications of having "rented"part of your property when you come to sell it.

I don't know the answer - just a factor to check so you are fully informed.

[smokey mow]

OzzyR1 said:

You could use helical screw piles which could be deemed as temporary: https://www.ukhelix.com/

I'm no expert, but please meet a local architect or planning consultant before going further

Temporary in terms of planning and building control has nothing to do with materials or method of construction. A temporary building is one that has a life of less than 28days.

[LeoSayer]

PaulV said:

Gifting won't work as the house hasn't sold and is unlikely to in the time we need to get things moving. They don't have a lot of savings either.

Also we don't want to fall foul of the 'deprivation of assets' rules with the Council for when further care is required.

Gifting in the circumstances you describe doesn't sound like deprivation of assets to me. More details here:

https://www.ageuk.org.uk/information-advice/care/p...