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fragglepants
Posts: 88 Forumite
Hi there!
My original plan had been to keep my flat as a pension pot. I would release some equity in the flat and use it as a deposit on a new house. I'd then rent my flat out.
All the figures allow me to do this i.e. have sufficient equity and would be able to achieve enough rent to cover the mortgage (on the flat) and expenses.
However, the dilema for me now is - is it wise to do this?
It will mean that I have to get a mortgage at a higher rate (probably 4% more than I could get with a higher deposit - as I'd have to leave some equity in the flat - and with a second property in the background). Also, the CGT changes.
I'm concerned that to keep the flat on will cost me more in the long run than I would make.
I'm not sure how CGT will affect me either - just had some people saying to me that it is bad news!
Can any of you help with some general advice/explanation of CGT?!
Thanks guys
:T
My original plan had been to keep my flat as a pension pot. I would release some equity in the flat and use it as a deposit on a new house. I'd then rent my flat out.
All the figures allow me to do this i.e. have sufficient equity and would be able to achieve enough rent to cover the mortgage (on the flat) and expenses.
However, the dilema for me now is - is it wise to do this?
It will mean that I have to get a mortgage at a higher rate (probably 4% more than I could get with a higher deposit - as I'd have to leave some equity in the flat - and with a second property in the background). Also, the CGT changes.
I'm concerned that to keep the flat on will cost me more in the long run than I would make.
I'm not sure how CGT will affect me either - just had some people saying to me that it is bad news!
Can any of you help with some general advice/explanation of CGT?!
Thanks guys
:T
0
Comments
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Do you have any experience as a professional landlord? Could you afford all of the mortgage repayments if you found yourself with a professional tenant who stopped paying the rent, trashed the place and it took you up to six months and the expense of taking them to court to evict them? If the answer is "no" then for goodness sake sell the flat and use the equity as a deposit on a new home.0
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Whilst it seems unlikely, even preposterous to some people, what would happen if the property crash wasn't over?
Would you be able to swallow the flat falling further in value, and the new house you went on to buy also falling further in value?
Leverage is great in a rising market, but can break people's faces off in a falling market.0 -
You both raise good points for me to consider
Now, what about this blasted CGT?!0 -
Basically, if you have made a chargeable gain, you will pay 18% on it if you are a lower rate tax payer and 28% on it if you're a higher rate tax payer (at today's rates).
However, your liabilty to pay CGT on a property you have lived in is likely to be small, or non-existant, unless the property increases hugely in price, or you rent it out for a very long time, because of the tax relief currently applicable to property gains.
There's an example here:
http://www.property-tax-portal.co.uk/taxquestion49.shtml
Of course, the rules and rates may change in future.
Overall, CGT should be much less of a concern to you than the points raised by the above posters, and the fact that you will be paying an (expected) 4% premium on your new residential mortgage, IMO.0 -
Basically, if you have made a chargeable gain, you will pay 18% on it if you are a lower rate tax payer and 28% on it if you're a higher rate tax payer
bit too simple
the new rules mean the (net) gain is added to your normal (Income tax) income and if this total is above the Higher Rate Income Tax threshold then you will pay a portion of the gain at 28%
therefore, if the gain is big enough, even a basic rate income tax payer will incur higher rate CGT, ie it does not apply only to existing higher rate Income Tax payers0 -
sorry!
but my main point still stands.0 -
also you have 36 months from buying the second property to dispose of the flat free of cgt liability.
It all depends on where it is - smart SW London borough keep it as the prices will outperforn inflation & the letting yield will tick over at c 4%.
Also factor in the pension pot, if its a good flat your pension is sorted & you may not need to contribute anything else.0 -
As it stands at the moment you would have 3 years (assuming you have always lived in this flat) after you moved out wher there would still be no CGT issues as at present the final 3 years of owenership are disregarded for CGT purposes if you have claimed PPR erelief (ie its your main house)
Can you afford any vacant periods if you decide to let it out possibly with 2 mortgages to pay
Seriously consider this if I was you. Not many people seem to think house prices are going up significantly any time soon0
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