To let or Not to let....some CGT questions

Nitramak62

Hi,

Looking for some help;

Have bought a house for 235K moving in September, but have been unable to sell my existing property, so thinking of letting and have a few questions;

My existing property had an outstanding Nationwide mortgage of 10K (valued at 170K) & an overpayment reserve of 38K, 36K which I have taken back (cheque in hand) for the deposit for my new property on my existing deal (Max 2% above Base rate + 1.5% for letting)

1) Am I right in thinking that if I sell within 3 years of moving out I don’t pay any CGT & can still claim exemption of up to £40,000 after that?

2) If I decide within 3 year CGT window that I want to continue renting is it possible to re-mortgage my old property to pay off some of the mortgage on my new property without incurring CGT or being done for tax evasion as less of rent will be taxable due to larger month interest payments on buy to let.

Any advice / Help would be greatly appreciated.

phlash

1) Correct. But you could sell after 5 years and actually not face any CGT payable due to the mixture of lettings relief, indexation allowance and your capital gains allowance. Bear in mind, CGT rules are subject to change in the emergency budget, we don't even know if the '3 year rule' will exist going forward - so you need to know that's an assumption that you will have it!

2) BIM45700 - Read this. You need to understand your capital account with the lettings business. You brought the house into the lettings business when it was worth £170k. It means going forward you can borrow up to £170k against this property, for whatever purpose, and the interest on the loan will be tax deductible. Borrowing against your lettings business asset does not trigger any tax, only selling your asset or part of your asset triggers potential CGT.

Thrugelmir

What rate of interest are you paying on the new property mortgage?

phlash

Thrugelmir wrote: »

What rate of interest are you paying on the new property mortgage?

If you're going where I think you might be going....watch out. Need to make sure you structure this the right way around for interest tax relief.

Thrugelmir

phlash wrote: »

If you're going where I think you might be going....watch out. Need to make sure you structure this the right way around for interest tax relief.

I was looking from a point of view of whether the existing property, if let, would generate a sufficent (after tax) return to make it worthwhile. As only a relatively small amount of interest would be offsetable against rental income.

Nitramak62

Hi,

Rate I'm Looking at on new mortgage is 2 year tracker base rate + 3.59% (4.29%) with lloyds tsb reverting to no more than 2% above base rate for rest of term with £895 Fee. It is a 85% LTV as thats all I could get using my overpayment reserve from nationwide.

Cheers

phlash

Thrugelmir wrote: »

I was looking from a point of view of whether the existing property, if let, would generate a sufficent (after tax) return to make it worthwhile. As only a relatively small amount of interest would be offsetable against rental income.

Good call. Trusted you had it covered.

Nitramak62

Rent I've been quoted by agent is about £650-£725 for my size of property (1908 3 bed semi detached - Scotland). They charge 50% of first month as finders fee than 10% per month management fee. My interest only cost, for tax relief, works out as £150 ish a month.

I looked at re-mortgaging old property to get LTV below 65% on new property, but increased cost on old against lower rate & tax relief of rent on new was negligible, even without taking additional fees into account. (Average 2.5% of loan)

phlash

The yield is pretty low.

Are you a higher rate tax payer?

I think you can certainly make your equity work harder for you.