How does it work renting a granny annexe to a family member?

[Turnips857]

Looking for some advice on this situation please. We are looking at a property that is set up so that it has a self contained granny annexe but it is all part of the same dwelling and is within the actual house itself (so not a separate annexe at the bottom of the garden). We are considering having my mum move in with us and her living in the granny annexe.

We can see that this would potentially be very complicated in terms of the purchase, deeds, what happens when she dies if she goes on the deeds etc. She currently owns her own property which is worth approx £200k. We can afford to buy the house by ourselves without any money from her but she would never expect to live with us completely free of charge. She is also very keen to ensure that she leaves inheritance to me and my brother.

Our proposal would be that she sells her property and then comes to live with us and pays us below market rent. Let’s say £500 per month inclusive of all bills (I think the market rate would be around £8-900 if it included all bils). This would be affordable for her as she has three different pensions and receives around £1800 a month. When she sells her property she can do whatever she chooses with her £200k but I would imagine that she will want to give the majority of it to me and my brother. She has about £10k of her own savings already.

Would we be required to pay income tax on the £500 per month? Could we avoid this by just having her pay £500 worth of bills each month rather than it being sent as “rent”? She would be living with us in our home so there’s no reason why she wouldn’t pay a share of the bills anyway. We wouldn’t set up a formal tenancy agreement.

Similarly I don’t know what would happen if she chose to gift us say £90k (and the same to my brother), I don’t know if this would be considered deprivation of assets or if we would have to pay tax on a gift that large but I guess that’s a question for the money board! If she did do this then at some point we would use that 90k to pay off a chunk of our mortgage. Thanks for any advice.

Is the only exit via the patio doors?

Yes currently. I haven’t seen the building regs or building control sign off, I would need to ask for that. Basically imagine a normal house that has five bedrooms and two living rooms. One of the living rooms has a patio door and was accessed via a door into the hallway. What the current owners have done is to temporarily block up that doorway so the only way the lounge can be accessed is via the patio. Then they have added a kitchenette to the lounge area and added a staircase to a bedroom upstairs with ensuite. Again the doorway to the bedroom that was off the hallway has been blocked up.

All this was done around 4 years ago as part of a big renovation which was all signed off so I had assumed the annexe was also signed off by building control. But it’s possible that the separation was done subsequently. I will definitely need to investigate.

Mine is totally separate, has its own kitchen, front door, separate postal address, has its own garden etc. You seem to be assuming it's not which I find rather strange.

Sometimes it's difficult to get a mortgage on a property with an annexe because it's a separate dwelling that you coukd potentially rent out to non family members. So the mortgage company would have a difficult time repossessing the property if they had to get a court order to evict a tenant. Also, it can be seen as a mixed use property if its on one deed- you have a residential and BTL on one mortgage.

We were specifically looking at buying with an annexe, so looked at loads of them.and did a lot of research. You might want to speak to a mortgage broker- there will be a solution to every annexe situation in my experience!

This is interesting, we had absolutely no issues getting a mortgage other than the estate agent messing up the floor plans so the annexe looked bigger than the house! Once that was straightened out there was no issue.

If it has no access from the house then it may well be seen as separate for both mortgage and council tax.

with only access via patio doors and a kitchen fitted I would question that it Is a legal conversion

then you are certainly not eligible to claim rent a room allowance and will need to calculate your rental profit as: gross rent received - actual costs = profit

if you cannot identify specific costs and instead need to apportion part of your own costs then the basis you use must be reasonable.
The alternative would be rather than claim actual / apportioned costs you instead claim the £1,000 property allowance as that is a flat rate that you do not need to justify.

if you claim the flat rate then at £500 per mth rent you will obviously end up with a taxable profit of £5,000 per year

If the property is owned by more than one person, then each person needs to declare and pay tax on their share of the profit based on their share of the property ownership.

That's not true. If its all on one deed then it would be one mortgage. It might be a mixed use mortgage depending on what you were going to do with the annexe.

Having no excess from the house has absolutely no bearing on anything at all.

Dad lived in our annex, but very much part of the main dwelling, as water, services, all connected to main dwelling, building connected and unable to function as an independent dwelling. He paid us a small amount to contribute to bills, and the annex came under Granny annex exemption for council tax, so none to pay. He would contribute towards shopping too on occasion or treat us to a meal. However he had no assets of any kind and deprivation of assets can be an issue where care is involved, so please take independent advice.

Quite apart from the issues around deprivation of assets and getting a mortgage... Have you ever been a carer OP and do you have any idea what it could entail? This sounds an impractical set up with the bathroom/bedroom upstairs. Is there a downstairs toilet in the annexe?

My childhood was spent in a set up like this and everything revolved around the needs of the grandparent in the annexe who needed all their laundry and cooking doing. That meant for much of my childhood family holidays were severely restricted. It never got as far as personal care but how would you feel about doing that? Especially if the lack of a downstairs toilet means a commode is needed?

What happens if you want a meal out or to go on holiday? Will she expect to come to. Would she have her own social life or would you be expected to be constantly making cups of tea for visitors? Who will give her lifts to medical appointments? Who will clean the annexe when she can't?

She might be a very healthy mid-70s person now but a lot can go wrong between 75 and 80.

I know someone who has recently bought a house which included a separate basement flat that was rented out as an AirBnB. Didn’t seem to be a problem.

In the short term while she is active and healthy then I would expect her to continue to live independently as she is currently. You can’t get into the house from what would be her annexe so there would be no reason that I’d be making cups of tea for visitors etc or doing her cleaning. I would of course make this clear to her but I know she also wouldn’t expect me to be doing this sort of thing, and I wouldn’t be making her dinner or taking her on holiday or or organising a social life or looking after her at all. She does all that stuff herself quite happily.

In the future of course this would probably start to change at some point but it would only be as and when it was a necessity because my mum is very keen to be independent and would never be finding excuses for me to help her out, more the other way round if anything (she already does stuff like offer to go up to the shops or the post office for me while I’m at work because she is retired and has more time).

I grew up though with my mum caring for my nan, my mum was holding down a full time job and had two kids and was basically my nans full time carer at the same time. It was very stressful for her, and she only lived a few roads away. She eventually went into a nursing home but prior to that my mum visited her daily for maybe ten years. She would go first thing in the morning and get her a morning cup of tea, then when she was at work she arranged for carers to come in and do her lunch, she also organised a cleaner and someone to bathe her and do her hair weekly. Then she’d go over straight from work every day and do her dinner and set her breakfast things out for the morning. Every weekend she’d come to ours for Sunday lunch and we might take her out somewhere. Rightly or wrongly I have always expected to do the same for my mum, my brother lives miles away so it’s just me and her here. She has lots of friends but no other family. So the posters who were saying I was “after her money” couldn’t be further from the mark, if anything the only way in which I’m being selfish is wanting her on the same property as me so that when I end up doing all of the above for her it’s not as difficult because she would be literally right there next to me. Similarly my Nan had an alarm she would press if she fell or needed help and my mum would go round there in the middle of the night, if this happens with my mum then she’d be next door and I could get to her immediately.

Sorry I didn’t answer some of your other questions. If it got to the point where my mum was unable to use the stairs then we could reconfigure the layout so that the upstairs bedroom became part of the main house again and she had use of another downstairs room and shower room on the ground floor of the main house. If she wasn’t able to manage stairs safely then at this point I think she wouldn’t need her own kitchen so there would be options for rejigging.

Also if I don’t provide care for my mum when she’s older then I don’t know who will. She doesn’t have the sort of money that would pay for her to be long term in a naice home. And as others have already pointed out, if she gives away or spends all her money then local authority care homes are often not brilliant and the nicer ones are hard to get into and the council would try to avoid having to pay for her anyway. One way or another I anticipate her having her care needs met either in her own home or in my home for as long as possible until it is unavoidable that she has to move somewhere residential.

If she needs lifts to medical appointments I would take her. Similarly I would clean for her if she couldn’t do it herself or I would arrange for someone to come in and help do it.

The thing that I find ridiculous about this is that some people get it all for free. My grandparents lived frugally saving for inheritance. Owned their council home and then care home just took it all. It wasn’t even a nice one. They were in single sex blocks so couldn’t share the same bed after 65 years of marriage. Broke their hearts. If my grandad tried to write a cheque for grandkids someone was over his shoulder watching what he was doing. He liked a little bet. Nothing big on the horses but had to stop. Others in the home had spent house money on big holidays, improving their homes etc and got it for free. For context their house was only worth £60k as they still had a 40 year old kitchen!!!

get a fancy accountant and protect that money for your mum to enjoy as she wishes rather than letting it sit for care home to take and leave her with no money to spend on herself like buying new clothes etc