Property - don't know which way to turn! Please advise

fusar

Hi,

Please can you advise on my situation below? I have no idea which way to turn!!!

My husband and I bought an ex-council flat in Woolwich back in 2002 for £48,000. We spent approximately £7000 renovating this small, ground floor, studio/one-bed. Two and a half years ago we moved out, using equity from the flat to buy another property outright. We then rented out the Woolwich flat.

As the flat was our principal residence for a couple of years, we have a three month tax break on paying capital gains – which ends in June 2007. Do we:

1.Sell the flat which has been valued at between £105,000 to £113,000 and then invest in another property – thus saving Capital Gains Tax

Or

2.Continue to rent the flat out, as Woolwich is going through a huge scheme of regeneration at the moment, with posh new flats going up everywhere, new transport hubs, plans for the largest Tesco’s in Europe to be built in the next few years, a booming BTL market etc. We are able to get about £550 per month for our flat, and the mortgage for both the flat and the house we live in at the moment is £622, so pays a huge chunk towards our bills.

What would you do? If we keep the flat, will our Capital Gains Bill be huge, if we ever come to sell? Can anyone guesstimate what our Capital Gains would be?

Thanks ever so much, any advice would be great
Sarah

Tassotti

It is imposssible to answer that question regarding CGT.

It depends on how long you keep the property and how much the property appreciates in value.

There are all sorts of relief available. You really need the advice of an accountant.

Is there any point in selling just to buy another one which will be subject to CGT? NO

You are better off keeping the property already owned as there will be less CGT than if you sold and bought another (Plus the selling/buying costs)

If you are looking to keep the property long term, hang on to it. If not, sell up and look at other investments.

Alternatively, sell up, keep the money and go round the world

fusar

Many thanks Tassotti.

I was thinking, if we sold and bought somewhere else, to move into the new place, so that it becomes our principal residence and then let out the house we are currently living in.


Does anyone know of a "simple" calculation to work out approximate Capital gains - we have owened the property for 5 years in June 2007, and have lived in it for the first two years. It has gone up by approximately £50K. Where can I find info about what reliefs apply to my situation?

Many thanks again!

happyhoney_2

Personally if I was you I'd hold on to the property. Why worry about the capital gains tax you'll have to pay in the future? Why would you sell it?
I invest in property myself and think it makes sense to hold on to property as an investment - especially in an area that is being developed.
There is a quick quide on the HM revenue and customs website which should tell you all you need to know about CGT and I'm sure they have a helpline which should be able to do a quick calculation for you if you were considering selling it now.
http://www.hmrc.gov.uk/leaflets/cgtfs1.htm

Hope that helps )

PoorDave

Sounds like it's making you lots of cash, so why sell now? I wouldn't, based on the situation as you've explained it.

devils_advocate

I would worry less about capital gains tax payable in the future than income tax payable now. Unless the interest on the flat's mortgage is more than the £550 you receive in rent, you will have an income tax liability. Probably best to speak to an accountant, who will be able to advise as ito the deductiblity of other expenses.

pigeonpie

Get hold of a good accountant (not cheap but essential) as you are right about Woolwich so if you are going to be hit with CGT it could get higher and higher if your flat's well situated for the new DLR (and not right next to Tesco lol). Then again, when David Cameron takes over (!!!) the Tories could raise the CGT thresholds?!
I wouldn't sell a good investment unless I really needed the cash or it was going to cost me more than keeping it.

silvercar

Don't forget you each get a capital gains allowance (currently £8,800). So you could make a chargable gain of over £17k without having to pay tax.

You get exemption for the time you live in a property as your PPR plus the last three years. If you own it for longer you pay tax on the proportion of the gain eg total ownership is 10 years, lived in it for first 5 years so exemption for last 3 years. Total exemption is for 5+3=8 years so you only pay tax on 2/10 of the gain. You also get tapering relief which will reduce it by a bit more.

fusar

Thank-you, Thank-you, Thank-you! Such invaluable advice. I think we will keep the flat.... just have to find someone to rent it now, as the tenant is about to leave soon. More decisions..... a letting management agency or do it ourselves (we live 4 hours away!) ??

Thank you again!

Sumostar

If the flat isn't giving you any headaches then it's worth keeping.

1 it sounde like a nice little earner
2 If you have kids they may want a place of the ir own in the future
3 you may want something smaller when you're old & grey
4 in the futuer you could sell your current residence (no capital gains tax) , move back into the flat for the "required" lengh of time to avoid CGT again, then sell it. You would then have the money from both properties to do with as you wish.