Sell Rental House to fund Extension on own house?

Please help, need some advice.

4 yrs ago I bought a rental property with a friend, we got it very cheap & did it up to rent out. We have a repayment mortgage and only have a few years left on the mortgage.

We have had good tenants, but they have decided they would now like to buy there own property. As the market is strong at the moment (the house is based in Northampton) me & my friend are thinking of selling it.

Do you think this is a good idea?

The reason I am thinking of selling is because I have just moved into my "forever home" and it needs a lot of work doing on it, which includes an extension, but have been told it will add a huge amount to the value in doing so.

I was thinking rather than get a loan to do the extension, I can use my profit on the rental property, which could be around £30,000/£40,000. But my husband is not sure, he is aware that the rental house is our pension pot - however we are only in our 30's and I think we can get another rental property in the future, once our very young children have grown up.

Also he is worried about how much tax we will have to pay on the rental property - does anyone know how much we will have to pay?

Thanks

Replies

  • xylophonexylophone Forumite
    39K Posts
    Part of the Furniture 10,000 Posts Name Dropper
    ✭✭✭✭✭
    rental house is our pension pot

    Do you have no other pensions? Are you both employed? if so, is there a pension scheme?

    You and a friend ( not your husband) own this property?

    http://www.hmrc.gov.uk/cgt/intro/basics.htm might be worth a look.
  • thanks for your reply.

    Yes me and my husband do have pensions. Although now I work part time and therefore only contribute a small amount. And my husband only set up his pension in the last 3 years (he is nearly 40).
  • and yes me and a friend own the property.
  • Mallotum_XMallotum_X Forumite
    2.6K Posts
    ✭✭✭✭
    It really depends on your attitude to risk, pensions, incomes etc.

    If it was me in your position I would keep the rental and do the other house up slowly.

    If you have bought the new place with a large deposit I'd be tempted to look at raising the finance on this in due course - usually best to wait 6 months however. You may find after living in the house for a period of time you want to design the extension in a different way.
  • edited 30 September 2014 at 2:49PM
    booksurrbooksurr
    3.7K Posts
    ✭✭✭✭
    edited 30 September 2014 at 2:49PM
    as for how much tax:
    - I assume you own 50% and friend owns 50% (your husband owns nothing)
    - you are liable for CGT based on the gain between what you paid to buy it (less EA, SDLT and legal fees for the purchase) and what you sell it for (less EA and legal fees for the sale).

    depending on what costs you claimed against income tax whilst letting it there may or may not be some capital improvement costs from the work you did in order to get it ready to let which you can also deduct

    from the net gain arising from the above you then deduct your CGT personal allowance (£11,000) leaving a net taxable gain on which you will pay CGT at either 18% and / or 28% depending on how big the figure is to start with and how much other income you have that year as to when the 28% rate kicks in

    obviously the worst case must be 40,000 x 28% = 11,200 in tax payable
  • Pixie5740Pixie5740 Forumite
    14.4K Posts
    10,000 Posts Eighth Anniversary Name Dropper Photogenic
    ✭✭✭✭✭
    If your friend wants to sell the property then I'd either sell it or buy out her 50% share. Once you or you and your husband own the rental property then you could always remortgage and use some of the money to fund the work on your home.
This discussion has been closed.
Latest MSE News and Guides