what to do? old house sell or rent? capital gains tax.‏

Logan008

weve just moved out of our family home of 14 years and bought another house, by releasing money from our old house using a Let To Buy mortgage through Birmingham Midshires. here's our current setup:


old house cost £35k now worth about £110k. my wife isn't on the land registry for this house as I bought it before we met.


I think to close the BM mortgage early would cost about £3k


the management company on the old house estate are moving toward replacing the garages at a cost of £2500 to current owners.


we released £63k to buy our current home.


so should we:


1) swallow the early repayment fees and get shot? avoiding Capital Gains Tax and possible garage bill.


2) rent it out for 2 years avoiding early repayment charges and maybe selling at an increased amount, due to house price inflation. but would we pay out a huge sum in CGT?


as I understand it you get 18 months free from CGT, so would they base any CGT on the last 3 months? assuming we sold at the end of the 2 year fix with BM.

Logan008

Wow 106 views and no ideas. Guess I need an accountant. Just goes to show that the CGT in this country is to complex.

anselld

There is no way you will have a CGT bill after two years renting if you lived there as your main residence for 14 years. All the time you lived there plus a further 18 months are exempt.

Why on earth did you take a let to buy product if you were unsure about your intention to let?

00ec25

CGT only becomes a factor where the gross gain is HUGE and / or the lived in as main home period is considerably shorter than the let period, meaning that you hit the £40,000 cap on letting relief. Even then you still have your personal allowance on top of all that
see examples below:

Sell Now
ownership period 168 months (14 years)
gross gain 110 - 35 = 75
lived in as main home : 168 months (14 years)

net taxable gain: 75 - private residence relief of 75 x 168/168 = ZERO

Sell in 6 years time when value doubled to 220k
ownership period 240 months (20 years)
gross gain 220 - 35 = 185
lived in as main home : 168 months (14 years)
let for 6 years until point of sale

CGT:
private residence relief of 185 x (168 + final 18 months of ownership)/240 = 143,375

letting relief , lowest value from a, b or c:
a) PRR (143,375)
b) gain in let period 185 x (240 - 168 - 18)/240 = 41,625
c) max allowed: 40,000

net taxable gain: 185,000 - 143,375 - 40,000 - personal allowance (11,000 @14/15 rate) = ZERO

CLAPTON

Logan008 wrote: »

Wow 106 views and no ideas. Guess I need an accountant. Just goes to show that the CGT in this country is to complex.

cgt rules are a little complex but extremely generous to some-one in your situation
would you prefer it otherwise?

Kynthia

As you can see above you are unlikely to incur CHT costs for a while due to PRR and lettings relief. However there are other costs and risks to being a landlord as well as need to pay tax on your taxable profit. Do some research to see if you want to be a landlord.

Logan008

thank you for the examples. especially 00ec25. were now breathing a collective sigh of relief. well assuming we can rent it without to many tenant/tax issues .