Buy to stay in and then let information

fantasticdan

Good Morning,

I'm currently looking to buy a fairly cheap 1 or 2 bedroom flat in my local area with savings as the interest rate on them is paltry. Now I am likely to be living is said flat for a year or two but I can see in the long run my girlfriend wanting to stay in a bigger place. As I would not be getting a mortgage for this I was considering it as a long term investment and to rent it out should I move out. I know that I would be liable for tax on the rental income but I've been reading up on the area and which? says that I would be liable for capital gains tax as well on the property should I choose to sell it later on as it may not be my residence. Is that correct? Is it capital gains on the difference between the original purchase price and the sale price? Is there an inflationary discretion on this each year? I'm basically trying to improve money I have sitting in accounts with low interest as inflation continually devalues it.

Many Thanks

Yorkie1

If you sell it more than 3 years after you move out there will be CGT to pay. I know that you have a CGT allowance which can be used to offset some of that gain but am not sure whether there is any other adjustment relating to value accrued while you lived there. I'm sure others will be along to offer better advice soon.

NB Before you buy any flat, check the terms of the main lease as some forbid letting it out to tenants under any circumstances, in which case your plan wouldn't work.

holly_hobby

BTL taxation

Income tax on rental income
Less than £2,500 pa and if you are an employee paid under PAYE - you can apply to HMRC to have your tax code adjusted, and have the income tax due taken at source.

More than £2,500 or if not paid by PAYE - paid under annual self assessment submission ( you will have to register for this if you dont currently use this service



You may offset gross income tax liability by application of:-

• mortgage interest
• rental costs i.e agency
• maintenance
• improvements (check with HMRC for those allowed as deductions of inc tax purposes)

Capital Gains Tax liability

If the property upon sale has never been your main or only residence - you are subject to capital gains tax on the whole gain realised on sale. Which is basically the selling/valuation price less the acquistion price.

Allowances from this is your (remaining) annual capital gains gax allowance at the time of sale

If the property has upon its sale previously been your main residence, the available allowances and calculation of CGT liability is a little different.

CGT is applied to only the years when the property was not your main residence - which is called primary residence relief and further excludes the last 3 yrs of ownership for CGT purposes.

Standard annual cgt personal allowance

With a further allowance against the calculted gross CGT liability( under previous owner occupier status) of lettings relief ( refer to HMRC for how this is applied )


Tax payable
Any chargeable gain after the application of allowances (if you are a basic rate tax payer on disposal) is charged at 18%

If you have a google of HMRC website there should be full papers on there explaining it all in detail.

Hope this helps get you started

Holly