Granny flat interest

A granny flat interest is an agreement for accommodation for life. It is not a description of the type of dwelling.

What it means

A granny flat interest or right is where you pay for the right to live in a specific home for life. It must be:

  • a private residence
  • your principal home

You can’t be a legal owner of the home.

The right only lasts for your lifetime. It’s not part of your estate when you die.

Homes that can be granny flats

You can have a granny flat interest in any kind of dwelling and not just those typically referred to as granny flats.

You cannot have a granny flat interest in a property in which you have legal ownership.

Granny flat interests are usually family arrangements providing company and nearby help for older people, but they don’t have to be for social security purposes.

We can count your home as a granny flat interest if:

  • it’s all or part of a private residence
  • you, your partner or a trust or company you control don’t own it
  • you’ve created a granny flat interest

You can be living in:

  • the same building as the owner of the home or
  • a separate, self-contained building on someone else’s land

Creating a granny flat interest

You create a granny flat interest when you exchange assets, money or both assets and money for a right to live in someone else’s property for life.

For example, you could transfer:

  • ownership of your home but keep a lifelong right to live there or in another private property
  • assets, including money, in return for a lifelong right to live in a home

Before you create a granny flat interest, contact us to see how it could affect your payments.

Life tenancy and life interest

There are 2 ways to have a granny flat interest:

  • life tenancy – the right to live in the property
  • life interest – the right to use and benefit from the property as you wish

With both kinds you need to be living there.

If the owner wants to sell

Your granny flat interest can’t be taken away if this happens. They can:

  • sell it but make your right to live there a condition of sale
  • transfer your granny flat interest to another property, or
  • give money or assets to you in return for giving up your granny flat interest

Put it in writing

We may accept that you have a granny flat interest even if it’s not in writing. But we suggest you get a solicitor to draw up a legal document so you have proof of what you and the owner have agreed. This can help prevent problems later if things change. The document should:

  • confirm your right to live in the home for life
  • say if you’ve agreed to pay rent or look after any upkeep of the property
  • say how the owner will compensate you if they want you to give up your granny flat interest

How we assess your granny flat interest

We need to know the value of what you transferred to the property owner in return for your granny flat interest. This is so we can assess whether we consider you to be a home owner or non-home owner, or if you have deprived yourself by paying too much.

We don’t use market value to work out how much a granny flat interest is worth. Instead we value it at the same value as the assets you transferred or paid if you are:

  • transferring the title of the home you live in to someone else and keep a lifetime right to live in that home or in another home
  • paying to:
    • build a granny flat on someone else’s property
    • convert someone else’s home to suit your needs and getting  a lifetime right to live there, or
  • buying a property in someone else’s name and get a lifetime right to live there

If you transfer other assets as well, we may assess them as deprived assets, or gifts.

Deprived assets and the reasonableness test

A deprived asset also known as gifting, is where you give away an asset without getting something of at least equal value in return.

If you pay more than the cost or value of your granny flat interest, the extra amount is considered to be a deprived asset. The amount of the deprived asset can be reduced by the value of the accommodation using the reasonableness test.

Read about gifting.

We subtract the value of your life interest determined under the reasonableness test from the gift amount to see if any deprivation amount will be applied.

For more details:

If we assess you as a home owner

Depending on the value of the granny flat, we may consider you as a home owner for assessment purposes, even though you don’t own the home you have the granny flat interest in.

Your home owner status determines:

  • if the amount you paid is an asset
  • which assets test threshold is applied before it affects your rate of payment
  • if you might be entitled to Rent Assistance

Extra allowable amount

Non home owners have a higher assets test limit than home owners. The difference between the two limits is the ‘extra allowable amount’. We compare this to your entry contribution.

Entry contribution

This is:

  • the amount you paid for the granny flat interest, or
  • if we assessed you under the reasonableness test:
    • the value of the granny flat interest – if you paid more than your reasonableness test amount, or
    • the amount you paid for the granny flat interest – if you paid less than your reasonableness test amount  

How your entry contribution affects your payments

If it’s more than the extra allowable amount If it’s equal to or less than the extra allowable amount
We assess you as a home owner in the assets test We assess you as a non home owner in the assets test
We don’t include your entry contribution in the assets test We include your entry contribution in the assets test
As a homeowner you can’t get Rent Assistance You can get Rent Assistance if you pay a high enough rent

If you leave the home you have a granny flat interest in

If you leave within 5 years, we’ll review the granny flat interest.

If the reason for leaving is something you could have expected when you created the granny flat interest, the gifting rules will apply.

It’s fine to be away from the home temporarily during the 5 years for up to:

  • 12 months, or
  • if it’s due to loss or damage to the home, the period can be extended for up to 2 years

Read about gifting.

Page last updated: 7 August 2018