Do you have a Granny Flat?
If you currently own a granny flat, or are looking at building one, do you know what the tax implications are? If so, you should know that the Government has requested the Board of Taxation to undertake a review of the Capital Gains Tax (CGT) treatment of granny flat arrangements.
Current Granny Flat tax laws
Under current tax laws, a homeowner may have to pay CGT where there is a formal agreement for a family member to live in their home. This could occur, for example, when a parent lives with their child either in the same house or in a granny flat.
Why a Granny Flat tax review?
It appears the Government is concerned that in some cases, the tax consequences have put families off from establishing a formal (and legally enforceable) family agreement. This means that there are no protection of the rights of the older person. Especially so if there is a breakdown in the agreement.
What will a tax review look at?
The review will consider and make recommendations on the appropriate tax treatment of these arrangements. In particular, it will consider the interactions between the current tax laws. The review will also consider the treatment of ‘granny flat interests’ under the social security rules.
What happens to the review results?
Stay tuned, as the Board is expected to commence the review in early 2019, with a final report due to the Government in the second half of 2019.
Have any questions?
Do you own a Granny Flat? Are you thinking about building one? Or are you buying a property with one? If you answered yes to any of these, you need to understand the full implications to your income tax. We, Tax Arana, are here to help. If you’d like more information about potential CGT and other tax implications for you and your family, get in touch.