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Selling a rented property
dazzer21
Posts: 74 Forumite
I currently have a property that I rent out that I need to sell. What I want to know is what provision I have to make for tax.
I lived in House 1 for a number of years before moving to House 2. I kept House 1 on to rent it out.
Because I am very rarely around due to work commitments, it was deemed best to sort out an agent to manage things. Although they immediately found a brilliant tenant (although they couldn't get anywhere near what they presumed they would in terms of monthly rent), after their commission and taking insurances etc into account, House 1 actually runs at a loss, albeit only by about £20pm.
My main question is that, bearing in mind that House 1 was bought as a domestic property, will there be tax to pay on it's sale? My understanding (correct me if I'm wrong) is that the house won't be subject to capital gains tax as we lived in the property first (rather than just buying it as a 2nd property for the sole purpose of renting it out).
House 1 has not been used for business purposes other than as a billing address as I work as a self-employed freelancer working all over the place.
As I have fallen into the good old self-assessment trap (paying tax for a good year while business has significantly dipped in the last 12 months!) I need to cash the house in to make up the shortfall. It looks like the tenant may be interested in purchasing which would help, but I need to capitalise as much as possible in order to bridge the gap as much as possible.
Your input is much appreciated. Thanks for your time.
Dazzer21
I lived in House 1 for a number of years before moving to House 2. I kept House 1 on to rent it out.
Because I am very rarely around due to work commitments, it was deemed best to sort out an agent to manage things. Although they immediately found a brilliant tenant (although they couldn't get anywhere near what they presumed they would in terms of monthly rent), after their commission and taking insurances etc into account, House 1 actually runs at a loss, albeit only by about £20pm.
My main question is that, bearing in mind that House 1 was bought as a domestic property, will there be tax to pay on it's sale? My understanding (correct me if I'm wrong) is that the house won't be subject to capital gains tax as we lived in the property first (rather than just buying it as a 2nd property for the sole purpose of renting it out).
House 1 has not been used for business purposes other than as a billing address as I work as a self-employed freelancer working all over the place.
As I have fallen into the good old self-assessment trap (paying tax for a good year while business has significantly dipped in the last 12 months!) I need to cash the house in to make up the shortfall. It looks like the tenant may be interested in purchasing which would help, but I need to capitalise as much as possible in order to bridge the gap as much as possible.
Your input is much appreciated. Thanks for your time.
Dazzer21
0
Comments
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If its not your main place of residence then its liable for CGT. Depends on how much you earn, but it'll be at least the basic rate, if not 40% 0n the profit.0
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You wont pay CGT on House 1 for the number of years you lived there PLUS 3 years. If longer than that there are plenty of CGT Property threads here that explain in detail.
Alan0 -
What about on the profit of the sale?
Originally House 1 was mortgaged for 65k; when we moved, we borrowed equity on it and the mortgage went up to 120k. The house is now worth around 190k - so I'm guessing that once all is taken into consideration, that's a profit of about 50k? (I don't know).
Will that be taxed?
Dazzer210 -
Dazzer the first question is "How long have you owned it and for how long was it your residence?"
Alan0 -
mortgage amounts are irrelevent when calculation CGT on sale. As others have said, you need to look at the price bought, price sold and the length of time owned (in total and as your PPR).I'm a Forum Ambassador on the housing, mortgages & student money saving boards. I volunteer to help get your forum questions answered and keep the forum running smoothly. Forum Ambassadors are not moderators and don't read every post. If you spot an illegal or inappropriate post then please report it to forumteam@moneysavingexpert.com (it's not part of my role to deal with this). Any views are mine and not the official line of MoneySavingExpert.com.0
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I bought the house in 2002, and moved out 2 years ago this May. Has been rented out since then.
Am I correct in saying, then, that If I moved into house 2 from house 1, selling house 1 to do so, whatever equity I would have made due to house 1 being worth more now than when I bought it wouldn't be taxable.
But if I moved into house 2 while keeping house 1, renting it out for a short while and THEN selling it, the proceeds of the sale would be taxable?
Confused and fairly worried...0
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