Try to sell flat or let it out ?

motherofstudents

My mum died recently and along with the obviously upsetting time, we are having to sort everything out. She bought a one bedroom flat in August 2008. The asking price was £102000 but in the end she got it for £90000. It is about 10 years old and in excellent condition. My thoughts were to put it on the market and see if it sells over the next few months. My brother however thinks it would be worth letting it out. The rent would be £475 pcm. I think I am right in saying that if we rent it out and then sell, we would have to pay capital gains tax. To me it seems like it is not worth doing as any rent we would get would have to be used to pay the tax bill. There is no mortgage. I'd be interested to hear what you would do in our situation. Thank you.

scottishblondie

Capital gains tax would eventually be applicable when you sell it, but it probably wouldn't be nearly as much as you think. It only applies from the time it comes into your ownership (i.e. the date you inherited it), so you don't need to worry about the years that your mother owned it. You also get a personal allowance before CGT kicks in, currently £10,600.

So if you own the property jointly with your brother and over that time the value increases by (for example) 30k, then you would each make a gain of 15k, less your allowance of 10.6k leaves tax payable on 4.4k. If you are a higher rate payer you would then owe 28% which is £1232, or 18% in the lower band which is £792. In reality you would have to keep it for a pretty long time for the value to go up that much.

What is more concerning than CGT is the responsibility of being a LL. It can be an awful lot to take on, and you have to be prepared. Make sure that you and your brother are both fully aware of the responsibilities, requirements and the costs before you commit to it.

Personally speaking, I would rather sell it.

motherofstudents

Thank you. Oh, I thought the CGT was payable on the value of the flat not just on any increase from when we inherited it ! I do take your point about renting it out and I think it is not something to rush into without a great deal of thought. I think my preference would be to sell but as there are two of us, we have to come to a decision and we want to be as informed as possible.

BitterAndTwisted

If your brother is so confident that letting it would be such a great idea let him buy your half from you at the current market-rate and he become a landlord on his own.

Once you've paid a letting-agent's tenant-finding fees, their commission on the rent collected, paid for any repairs that need to be done and then paid tax on the rental-income you could find that your profit per annum could be minimal and barely worth the risk and effort involved.

In your position I would sell.

motherofstudents

Thanks B&T, I hadn't thought of doing it that way but he might rather do that. I don't think it's a case of him thinking it's a great idea but one of the flats was for sale for months and now they have taken it off the market so with it not being easy to sell he probably thought it made sense to rent.

BitterAndTwisted

Any property will sell, the only question is for how much. If it's sensibly-priced you will find a buyer. I suspect that the other flat didn't sell because the vendor "needed" a certain amount to clear their mortgage. They've probably withdrawn it because they can't afford to drop the price.

Annisele

motherofstudents wrote: »

one of the flats was for sale for months and now they have taken it off the market so with it not being easy to sell he probably thought it made sense to rent.

Was the flat on the market with a realistic asking price? Sometimes it's not that properties are difficult to sell, it's just that sellers are holding out for more than they can realistically get.

motherofstudents

Well, it was on at £94k, dropped to £92 but is a 2 bed. I don't know how realistic that is. The one bed was bought for £90k in Aug 2008. I have tried to find a site that I have looked at before which gives % drops in price, graphs etc but I haven't been able to find it. The vendors of the other flat had no mortgage but having been ill/mobility problems they wanted a ground floor flat. They needed enough to buy one but of course I don't know all their financial details.

BitterAndTwisted

Well, the £92k was very obviously unrealistic if they couldn't find a buyer! If that two-bed wouldn't sell at £92k I think you'll be lucky to get an offer over £80k for the one-bed.