If MIL gifts her house to us can we raise a BTL mortgage to build her an annex?

[deepest]

Are there complicated tax and IHT repurcussions if we go this route?

not complicated but probably expensive.

as per my other reply; have you done the sums?

Thanks special - are you suggesting that BTL is an expensive way to generate a revenue stream (ie for her income) and at the same time release capital to build accomodation? Sums are house worth 500 - need to release 40 to extend and create an annex at ours. Gross monthly rental would be 1400. Need to deduct BTL mortgage and other costs to calculate income.

If she dies within 7 years it is likely the property would be included for IHT as part of her estate. If you sold then it you would be liable to CGT as it is not your principal residence. Could you not sell it now and raise 40k against your own property short tmer for the build ? 450k in the bank would still generate a fair income.

yes, I am suggesting that BTL is not a goldmine. :-)

costs: (although some are tax deductible)

mortgage
agent fee: 10% usually Plus vat
tenancy set up : agents charge extra for this, annoying for all!
insurance: you'll need to get quotes but as well as specialist landlord cover which must include malicious damage (Aviva and Direct Line do not!) you also need legal cover (not too pricey) and you should consider rent guarantee cover too.
maintenance cover: unless you want to be on 24/7 call and never go away you need this.
gas cert and boiler service: £200 odd a year
fixes
void periods when you pay all bills and the mortgage.

see a reputable agent for some advice; but consider selling. If that does generate £450k in cash, you could get 3% interest on some of it with current accounts. BUT you will need to scatter it between banking licences for safety and of course it will erode with inflation. Investment is really the only way.