Annexe advice please

[Shepster77]

Hi, debut post on LMH. I have spent a while searching through topics and posts about the majority of the aspects of running a holiday let.
We are presently contemplating buying a three bedroom detached property in the West Country which has an adjoininsg one bedroom annexe. The annexe at present is judged part of the house and the present occupier is only paying one council tax. Would this be the same situation if it was used as a holiday let?
We are not looking to make vast sums from the holiday let, just enough to make a hefty mortgage a little more manageable!!
One other question is regarding ballpark figures for insurance for a one bed let for two people. I have tried a few websites but any practical real advice would be gratefully received.
Our plan is to have a few animals on the accompanying land that guests can help with if they desire. Hopefully this may make the let more appealing for folks who wish to taste a bit of the good life.

[Giraffe]

Welcome Shepster77.

Re council tax, one of the key determining points is whether the annex has a separate entrance from your residential home. If you holiday let the annexe I would assume this is would be the case. You would not want visitors walking through your home.

Even if you are liable for council tax, you may qualify for business rates if you make your holiday let available for 140 days per year and run it as a viable business. If this is the case you may qualify for the 100% discount which is available.

There are a number of topics on LMH which discuss business rates.

I think your idea re the animals could be a good selling point, although not if you have a cockerel which crows at the crack of dawn!

[Jeddy]

Hi, I'm also quite new on here. We have a 1 bed annex which is going live next week. I had three insurance quotes, they all quoted for the entire property, so our 3 bed plus the 1 bed letting annex. The quotes were £315, £477 and £555. The two higher quotes include loss of rental income. Judging by the questions they asked, any extra facilities such as hot tub, tennis, (so possibly animals?) would have increased the risk and therefore increased the price.

[Shepster77]

Thanks for the replies folks, much appreciated. The annexe does have its own entrance so not having to pay council tax is certainly good news. None of the sites I visited mentioned about that businesses can get discounts.
Regarding the insurance, the figures you mention were roughly what I had been getting on a couple of sites and seems pretty reasonable.
The plan for the animals is to have a dozen or so chickens (no cockerels), a few geese as security, a few sheep all year, some pigs in the summer and turkeys in the winter. Hopefully, guests will be able to go and collect fresh eggs each day for their breakfast. Ideally we want to give the annexe a quaint farmhouse look rather than anything modern.
Anyhow, back to work! Thanks again for your responses and I'm sure I'll be back with many more questions soon!!

[nealh]

Hopefully, guests will be able to go and collect fresh eggs each day for their breakfast.

This is definitely a big plus for us... our visitors love going down in the morning to collect the eggs as well as watching the hens scratch around in the field. Before getting chickens, I never realised how comical they were!

We also have a veg patch that visitors like to enjoy. Once you have tasted sweet corn that has been just picked and then BBQ'd, you will never settle for supermarket corn again!

[Orsonthecat]

Hopefully, guests will be able to go and collect fresh eggs each day for their breakfast.

At the risk of thread hijacking I'm guessing at the minute you're not inviting guests into your chicken run area Neal? The avian flu ban is still in place and I'm not allowing anyone (even my kids who usually help!) in the coop so as to reduce the risk of bio-contamination. Fingers crossed the ban is lifted at the end of February as it's a long time for the poor girls to be restricted 😟

Just edited this to add - or is the ban not in place in Cyprus? Sorry just noticed your holiday let is based there

[nealh]

Just edited this to add - or is the ban not in place in Cyprus? Sorry just noticed your holiday let is based there

No ban here that I know of... a few years ago, when avian flu first reared it's head, there was a ban. As our chickens have the field to run around in we quickly built a temporary covered run area for them. When we mentioned this to people in the village they thought we were crazy as they just carried on as normal and took no notice of the rules - but then that's Cyprus for you!

[zebedee]

Don't forget, if you pay business's rates (or get the releif) you will have to pay capital gains tax on an element of the property when you sell.

[Giraffe]

I thought that if you run the holiday let as a proper business for several year before selling, you then only pay business tax rather than full capital gains. Is someone more expert than me on this?

[zebedee]

I would be happy to stand corrected if anyone knows better. You can claim business tax roll over if you are selling one FHL property to buy another for the same purpose, but that is just deferring the day that you pay capital gains tax.

My accountant says all property income is considered "unearned income". He is reluctant to claim much in the way of tax Releif for office space at home as he says it would incur capital gains tax on a proportion of the sale if we sold our home.
You do pay capital gains tax on property when you sell it, both residential letting and FHL

https://www.gov.uk/government/publicati ... sheet/cvgg

https://www.gov.uk/government/publicati ... psheet/sfs

[Giraffe]

Hi Zebedee,
Don't disagree with what your accountant says.
. You can claim relief on rollover
. You do pay capitals gains on selling a holiday let. But if you have run it as a commercial business you can claim "Entrepreneurs' Relief" which reduces the CGT down to 10%.

I looked up "Entrepreneurs' Relief on www.gov.uk. Some info, quoted from this site:
. You may be able to pay less CGT when you sell (or dispose of) all or part of your business.
. Entrepreneurs' Relief means you pay 10% on all qualifying assets.
. You qualify if all or part of your business is as a sole trader or business partner.
. FHLs are classified as business assets for CGT purposes, which means that the tax is levied at 10%.
. Ordinary Buy-to-Lets will still have to pay 20% when selling.

Hope this helps. Giraffe

[Shepster77]

Sorry to say I am not to knowledgable on taxes or even businesses!
Reading through this I am interpreting that CGT is paid on any profit you make when you sell the property. Council tax would be about £1000 a year. If we keep the place for 15 years that would save us £15000. Using the entrepreneurial route of 10% CGT we would need the property to rise in value by £150000 to get the same saving.
This is my very simplistic understanding.

[Nemo]

You'll have to either pay Council Tax or Business rates for a separate annex. So if you comply with business rates then currently there is small business rate relief to offset the charges but we don't know that it will last forever. You also have to pay for your refuse collection as that isn't covered by business rates, so that comes out of the difference between the savings on CT versus the cost (or not) of BR.

[zebedee]

Sorry, I didn't make myself clear. In my original post I wasn't saying don't claim business relief. I don't see it as an either / or option, just offering advance warning that there would be a tax bill when you eventually sell your home if you use part of it as a holiday let.

[Giraffe]

Shepster77, currently one can get both annual business rates with 100% discount AND Entrepreneurs' Relief if you sell. They are not mutually exclusive.

Currently I save £2100 council tax and receive the 100% discount on business rates, although as Nemo says you then have to pay for refuse collection. If I sell I would also receive Entrepreneurs' Relief on the CGT liable on any profit on the property as I satisfy the HMRC rules for a holiday let business.