Rodney, thank you for your reply.
Specifically, when does the new dwelling become a legal new dwelling?
Once it is registered in your name at the Land Registry and you have a title deed number.
Can we rent it as an annex to our home and sub divide title later when we might wish to sell?
As I understand the property is a standalone unit i.e. could be sold as a separate unit and not an integral part of the main property, notwithstanding the fact you have sharing walls? If not, the part that is not used as your main residence would be chargeable to CGT on sale.
Should we take steps for one of us to nominate this dwelling as our PPR first?
As you are not married, you can both have a property each and nominate it as your main residence to avail private residence relief on any gain made when property is sold. You are not bound by conditions applicable to married couples. It would be a good idea to nominate the new dwelling as main residence of one of you.
As the current property is in joint names then you can only claim one property as a main residence at any one point during period of ownership.
You should nominate which property is your main residence within 2 years of acquiring another property. There is nothing stopping you letting the new property initially and then moving into it and making it your main residence for a period before you sell it. You would also be entitled to relief for the final 18 months as the property would have qualified for main residence.
Provided a property has been your main residence at some point during the period of ownership, you would be able to claim letting relief up to a maximum of £40k per owner for the period the property is let.
More information on private residence relief is covered in HMRC help sheet HS283 here
I hope this is helpful and answers your question.
If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.