What would you do ?

jampot7us

My brother recently passed away unexpectedly aged just 39. I have inherited his home worth aprox 300k. The home is about 80 miles from where I live and has 3 tennants in it. I have a house worth about 190k but with a 70k mortage on it. I am 37. There is no capital gains to pay on the inhertance as under the limit. What happens if I let things run, is there a cut off point and I will have to pay tax if I dont sell the property straight away. What prudent way would you manage my situatiuon etc etc.Thanks in advance.

p00hsticks

Sorry to hear about your brother.

The house would presumably have been valued as part of the calculations of the overall value of his estate. You need to ensure you keep a copy of that valuation - when you eventually come to sell, you will be liable for CTG on any rise in value.

Any rental income (less allowable expenses) you recieve will also be liable for income tax.

It depends on your circumstqnces of course, but personally I'd say that unless you have any burning desire to become a landlord, I'd sell it - do the sums, but the chances are that even with the current poor interest rates you could get as much income simply from putting 300k in a set of good savings accounts as you could from keeping and renting out the property, without any of the hassle of maintenance, finding tenants etc...and the general concensus seems to be that property prices aren't likely to rise much (if at all) in the next few years

jampot7us

Someone told me after a couple of years if I didnt sell it, the full value of the property would become liable to cgt. The rent on it brings in 900.00 per month....

John_Pierpoint

You acquired it at the probate valuation, you will make a capital gain (perhaps) when you sell it if sale price minus costs of sale (legals, estate agent EPC etc.) minus probate value.
The resulting figure (plus any other taxable capital gain) then has the currently 10,100 annual exemption deducted and the remaining gain (if any) then gets added to your annual income and taxed at 18% standard rate plus another 10% (making 28%) on the amount that is (now) over the starting figure for higher rate tax.

If you have a spouse or other legally recognised union, you could give your "other half" a share of the property and get another set of capital tax exemptions and lower rates. It is advisable to do this well ahead of putting the property on the market or HMRC could claim that the transfer was just a tax fiddle not a bona fide gift.

The stuff about two years is probably a myth about the periods one is allowed to spend trying to sell a property that has been a capital gains tax free principle private residence at some stage. It is currently 3 years not two.
If you need further advice about PPR relief, just ask a flipping MP
.

Niggles

p00hsticks wrote: »

Sorry to hear about your brother.

It depends on your circumstqnces of course, but personally I'd say that unless you have any burning desire to become a landlord, I'd sell it - do the sums, but the chances are that even with the current poor interest rates you could get as much income simply from putting 300k in a set of good savings accounts as you could from keeping and renting out the property, without any of the hassle of maintenance, finding tenants etc...and the general concensus seems to be that property prices aren't likely to rise much (if at all) in the next few years

Just to put the other side of the argument I am in a very similar position.
My mother has just gone into a nursing home and her property valued at about £300k is renting out for £925 a month. We are 80 miles away also and want as little hassle as possible.
We have gone with an agent charging 12.5% + vat which amounts to £136 pm, we are putting away £150 pm for expenses, sinking fund etc. which reduces income to around £639. Tax at 20% amounts to £128 leaving £511 net profit. This will of course vary depending on actual expenses. Return is thus about 2.04% or equivalent to 2.55% for a 20% tax payer.
If you sell you have to find six institutions for each of your £50,000 all paying at least 2.55% gross. Not always that easy.
I have assumed aspects such as no mortgage, 20% tax payer etc. and ignored 10% wear and tear etc. which may be different in your case but as you can guess we have gone with rental which does have some hassle but so do running six or more savings accounts.

dzug1

John_Pierpoint wrote: »

The stuff about two years is probably a myth about the periods one is allowed to spend trying to sell a property that has been a capital gains tax free principle private residence at some stage. It is currently 3 years not two.

.

More likely that a distressing proportion of the population think that CGT is payable on the full value of the sale, not just on the gain.

p00hsticks

jampot7us wrote: »

Someone told me after a couple of years if I didnt sell it, the full value of the property would become liable to cgt. The rent on it brings in 900.00 per month....

I suspect that they are thinking about the rules that apply when you move out of a house you have previously been living in - then you have three years to sell after you move out before CTG needs to be considered. This doesn't apply here - CTG will apply on any rise in price from when you inherited to when you sell it (NOT the entire value of the property).

You need to let the taxman know that you are recieving rental income from the property as you will be liable to pay income tax on it - you can claim some expenses against the tax due, for wear and tear etc....

sleepless_saver

jampot7us wrote: »

There is no capital gains to pay on the inhertance as under the limit.

It's inheritance tax, not CGT, that has a threshold (£325k) below which no tax is due.

CGT is quite different and as other posters have pointed out it is the change in value between the probate valuation and what you sell it for that counts towards CGT liability.