Is a granny annexe subject to council tax?

The Valuation Office Agency decides the first question, and it looks at what the annexe was built or adapted to do, not at how the family happens to use it today. A finished annexe with its own kitchen, bathroom and somewhere to sleep counts as separate living accommodation and gets its own band, even if it is currently used as a study or a guest room rather than lived in full time. How an annexe gets its own council tax band below covers that test in full.

The second question, who lives there, is where most of the money is either saved or lost. A dependent parent moving in can remove the bill entirely. A grown-up child or another relative moving in, or the household using the annexe as extra space rather than letting anyone live in it separately, still halves it. Only a stranger renting the annexe, or nobody living there with no planning restriction stopping that, leaves the full charge in place.

If you are still weighing up whether to build one, how much it would cost to build a granny annexe and the complete guide to granny annexes cover the decisions that come before this one.

If an annexe has all three, the Valuation Office will normally band it separately. It makes no difference that it shares a boiler, a water supply or a single meter with the main house, that it could not be sold on its own, or that the family currently uses it as a study rather than somewhere to live. Built or adapted for separate living accommodation is what decides it, not how it happens to be used this month.

Nobody applies for a band the way you would apply for a discount. In practice a band gets assigned when the council learns about the annexe, for example from building control paperwork or because you tell the council yourselves once the annexe is finished. Telling the council straight away is worth doing anyway, because a claim that reaches back months is harder to prove, and the council will want evidence of the date the arrangement started. If you think an annexe, or the main house, has been given the wrong band altogether, gov.uk's band checker lets you look it up and challenge it, with evidence, free of charge.

Whether the annexe needs planning permission before you can build it at all is a separate question, decided by its size and how self-contained it will be. Do you need planning permission for a granny annexe covers that, and is worth reading before a design is finalised.

Relative is defined broadly for both the discount and the exemption: a spouse or civil partner, a parent, grandparent, child or grandchild, a brother or sister, and further relations such as an aunt, uncle, niece or nephew, along with the equivalent for an unmarried couple. Where the confusion usually starts is between the 50% discount, which applies to almost any relative living in the annexe as their main home, and the full exemption, which only applies once that relative also meets the dependent relative test on age, mental impairment or disability. A daughter in her thirties living in the annexe qualifies the household for the 50% discount. Her mother moving in a few years later, once she is 65, moves the same annexe from a discount to a full exemption, without anything about the building itself changing.

You can get the free printable PDF to keep with this guide.

A disregarded person is simply not counted when the council works out how many adults live in a home. Gov.uk's list of people who are disregarded includes a live-in carer for someone who is not their partner, spouse or child under 18. The regulations behind it for England and Wales set four conditions, and all four have to be met:

Being disregarded changes the count of adults, and the bill follows the count: if your parent is then the only adult counted, the home gets the 25% discount for somebody living alone, and if everyone living there is disregarded it is 50%. You still have to apply to the council.

How this plays out depends on where your parent and the carer live:

• Your parent and the carer both live in the annexe. If your parent qualifies as a dependent relative, the annexe is usually already exempt under Class W. That exemption depends on your parent living there, so a carer sharing the annexe does not by itself remove it, but tell the council about the change.
• Your parent and the carer live in the main house. The carer can be left out of the count there, which can bring the 25% discount if your parent is then the only adult counted.
• The carer has the annexe and your parent lives in the main house. The carer is not living in the same dwelling as the person they care for, so the disregard does not apply, and nor do the family discount and exemption, since the carer is not a relative. Ask the council in writing how it will bill the annexe before the carer moves in.

A live-in carer in a granny annexe covers both set-ups in full, including the room and breaks a carer needs, and tax and live-in care explains what a carer's room and meals mean for tax and benefits, with a link to council tax discounts for carers in the funding guide.

If a planning condition or a legal agreement stops the annexe being let or occupied separately from the main house, an empty annexe is exempt under Class T for as long as it stays empty and the restriction stands. Councils can grant planning permission for an annexe on the condition that it is used by a family member and never sold or let independently, and where that condition exists it is what qualifies the annexe for the exemption while nobody is living there. Your planning decision notice will say whether yours has one.

The practical answer is not to let the annexe sit empty for long. If nobody is ready to move in yet, ask the council in writing what the annexe's status is and whether a planning condition applies to it, rather than assuming it is covered.

1. 1

   Tell the council once the annexe is occupied or finished

   Before the first bill

   The council website will say how to report a new self-contained annexe or a change of circumstances. Do this as soon as it happens, and keep a note of the date the arrangement started, since the council will want evidence of it before applying a discount or exemption.
2. 2

   Send evidence for the discount or exemption you are claiming

   With the application

   Proof of the family relationship for a 50% discount or a Class W exemption, and for severe mental impairment, a doctor's certificate confirming the diagnosis and when it began. For an empty annexe, a copy of the planning condition that stops it being let separately.
3. 3

   Report any change within 21 days

   Ongoing

   A discount or exemption follows the person living in the annexe, not the annexe itself. If your parent moves into a care home, a different relative moves in, or the annexe is let out, the law gives you 21 days to tell the council. Missing that deadline can mean a fixed penalty on top of the council tax owed once the discount or exemption no longer applies.
4. 4

   Ask the council to review a refusal, or challenge the band itself

   If it goes wrong

   You can ask your council to look again at a discount or exemption decision, and appeal to the free Valuation Tribunal for England if you still disagree. A band you think is wrong is challenged with the Valuation Office rather than the council, and gov.uk's band checker is the place to start.

If you are weighing up building an annexe against buying a house that already has one, do granny annexes add value and finding a house with an annexe for sale cover the two routes families take before council tax ever comes into the decision.