Granny Flat addition

Hi everyone,

We are looking at building a granny flat at the rear of our house. We will however not be having granny to stay (just yet) and in the interim we will be renting it out.

As this is all new to us I have a few questions which I hope you can pass on some of your wisdom.

1) We will be taking out a loan to build the flat, will the interest on the loan be tax deductible?
2) Obviously the income off the flat will be taxable, however are there any capital gains implications when it comes time to sell the house?

Thanks,

Go Girl
 
The interest would be tax deductible if you rent the flat and you decide to declare it. You'd also have to pay tax on the income and capital gains tax on a portion of the property when you sell.

There's a good chance that the income from the flat will be greater than the costs associated with it, you it'll be cash flow positive and you'll likely be paying tax overall.

Personally I'd rent the flat out for cash, not claim the interest and never have to worry about CGT.
 
Personally I'd rent the flat out for cash, not claim the interest and never have to worry about CGT.

I'm with you on that one :) However I have Public liability concerns - if one was not to declare the income how could you get around these?

Thanks,

Go Girl
 
To give you a definitive answer, you'd be best to ask a good insurance broker. It's possible that some landlord insurance policies may not require you to declare the income, but I can't think of anyone on the forum offhand who's an insurance specialist.

I do know a couple who might be able to answer this question but you'd need to have a conversation with them. Insurance and public liability is the sort of thing where the advice does often need to be specifically tailored.
 
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