Mortgage paid off! What is our tax liability if we rent the house out?

soldier_sam

By being disciplined, my girlfriend and I have just paid the last payment on her mortgage, 20 years early :j ... (well it was only £24,000 to start with but it sounds good!). We plan to marry soon (good timing!!) and we plan to live in my 4 bedroom house rather than her 2 bedroom house and hoped to rent her house out. What are the tax implications that we can expect as I assume capital gains may play a part as we would have 2 house or am I wrong?? Can someone offer advise please?

h4nym

I think that your original house will attract some capital gains tax relief - something in the back of my mind is telling me it's the time you lived in it plus the next three years. That's for capital gains. You potentially become liable for Income tax, of course, as soon as you earn any income!

What may be a good idea, though - if, of course, you're comfortable with the relationship - is to put the house into joint names BEFORE YOU MOVE OUT of it. That way, capital gains can be halved between you, and there's double the allowance etc. that will minimise your capital gains tax liability hopefully to zero. Equally, income - and profits - from the rentals can be split between you - maximising the efficiency of the allowances that you get on income tax.

Of course I'm not an accountant (but I am a businessman and landlord so hopefully I know some of what I'm doing!) and, as always, take professional advice whenever you think it's appropriate!

Hope this helps!

H