renting my flat - capital gains

dandy2012

Hello,

Can anyone help. I want to rent my flat for 6 months. We are going to move in with my parents, because we are trying for a baby and need to save some money. After six months - one year, we plan to sell our flat and get something a bit bigger.
We will tell our tenants what we have planned - it's not part of our plan to mess anyone about.
My question is - does anyone know if I will be liable for capital gains tax when we sell our property. We have lived here for two and a half years.

Thank you.

G_M

I'm pretty sure not - but read the HMRC rules on how long you have to have lived there yourself to be exempt.

Having said that, I doubt it is worth letting for 6 months. The set-up costs, the hastle, the risk (damage, rent arrears), the learning curve, just for 6 months rental income....? Before income tax....?

Forget it. Sell straight away. Live with parents, Put the cash into the best savings account you can and it's earn with far less trouble.

James_N

dandy2012 wrote: »

Hello,

Can anyone help. I want to rent my flat for 6 months. We are going to move in with my parents, because we are trying for a baby and need to save some money. After six months - one year, we plan to sell our flat and get something a bit bigger.
We will tell our tenants what we have planned - it's not part of our plan to mess anyone about.
My question is - does anyone know if I will be liable for capital gains tax when we sell our property. We have lived here for two and a half years.

Thank you.

You are potentially liable for gains, but can reduce them. You really need to get advice. I have found HMRC themselves helpful.

ROUGHLY:
1. No liability for your own home - so gains while you lived there are exempt.
2. Joint separate annual allowance will eat into any gains
3. indexing will eat into gains
4. If you move back, and then sell it will eat into gains
5. Some monies you spend on it are potentially going to offset against gain

The short answer is you can do much to reduce any gain. Precisely how depends on periods of time, exactly what you do now, and how you own it. It's all do-able but possibly complex.
Get professional advice if this is significant money.

Werdnal

I would agree with GM above - the hassle, stress, costs and pitfalls of letting for 6 months are not worth it. You will probably use up as much as 2 months of that rental income in costs for getting the place prepared to let. As its a flat, does your lease allow you to let it? Do you have a mortgage - have you consulted them for consent?

If you are planning to market it for sale in 6-12 months, I cannot see value will change much in that time. If you can move in with parents and put it on market as vacant possession, it should sell quickly.

Also, you do not seem to understand how letting works - even if you tell your tenants you only want to let for 6 months, and they have a tenancy for 6 months, they do not legally have to leave at the end of the 6 months. Eviction means a court order, more costs, stress and hassle and trying to sell with tenants in place will only hamper things further.

Sell now, invest the money well and forget the letting idea altogether. Trying for a baby and saving money is all you really need concentrate on now - don't add the complications of letting, bad tenants, repairs, maintenance, calls at 3am about a burst pipe, rent drying up, trying to sell with tenants who won't leave or allow any viewings etc make things more difficult!

James_N

the advice from the above two posters is excellent, really.

Don't bother.

dandy2012

Hi there,

Thanks - you are all probably right. The problem is we'd have to pay a penalty to get out of our mortgage - £7,000 if we sell now.

I have a bit of experience with another flat we rented a few years ago, so I know the financial implications involved - short assured tenancy agreement, energy performance report, landlord registration etc. (we live in Scotland, so I don't know if the same applies in England.

Thanks for all your feedback

00ec25

James_N wrote: »

You are potentially liable for gains, but can reduce them.
It is (was) the OP's main residence therefore they have NO liability for CGT for the entire time they lived there with that status. Also because of that stratus they have a further 3 years (36 months) after they move out to sell it and have no CGT liability - this is called the "deemed occupancy" or "3 year rule". It does not matter what they do with it in that period, including rent it out, it will be exempt from CGT
ROUGHLY:
1. No liability for your own home - so gains while you lived there are exempt. Correct
2. Joint separate annual allowance will eat into any gains Correct - currently £10,600 per owner
3. indexing will eat into gains Wrong - indexation abolished years ago for personal assets
4. If you move back, and then sell it will eat into gains If you move back that implies you have previously lived there so it will not give you any more exemption that you already have, ie the last 3 years of ownership are exempt. So to "eat into gains" you'd have to live there fore longer than 3 years to get any extra benefit from moving "back
5. Some monies you spend on it are potentially going to offset against gain only if spent in connection with it being let ie must be related to a business purpose not an improvement for personal benefit

The short answer is they have no liability for 3 years after they move out you can do much to reduce any gain. Precisely how depends on periods of time, exactly what you do now, and how you own it. It's all do-able but possibly complex. not in this case!

see above, you are a bit out of date in your knowledge and missed the simple scenario!

James_N

00ec25 wrote: »

see above, you are a bit out of date in your knowledge and missed the simple scenario!

Very clever. You do know about being cautious when you don't know the OP's exact circumstances and how it may pan out in actuality, and the effect of using words like "roughly" and "may", do you?

The generality of the advice is good, and any poster here should seek advice they can totally rely on before taking a major decision.

arbrighton

It will probably be at least 12 months before any small person arrives. And they would probably be in your room for at least 6 months.
That gives you 18 months min to overpay mortgage to increase equity for deposit.

00ec25

James_N wrote: »

The generality of the advice is good,

not when it failed to mention the 3 year rule which is the most basic of any CGT exemptions in respect of properties that were once lived in nor when the "general" advice refers to out of date info

CGT and letting is a very regular topic on here, eg. do a search on letting relief. If all you can offer is general advice on technical topics then leave posting to others who know specifics