tax implications on my inherited property, selling or renting?

newdave1975

hi im looking for some advice. i have a property that i inherited. its valued at around £120k. i dont think i pay any CGT on as its dropped in value from probate, was valued then at £135k.
now my question is i am a pensioner, i own the home i currently reside in, have a state pension with a top up from the NHS, where i worked. my income is around £800 per month and am a basic rate taxpayer. i have a small holding in shares and an ISA.
now what to do about the property, i am deciding between renting it out, giving me a regular income (managed by a estate agent) i should come out with around £400 clear, taking £100 for management fees/insurances. what would my tax liability be?

similarly i could sell the property, giving me a lump sum. what would be my tax liability under this scenario? would the added sum of £120k in my finances push up my tax code?

many thanks and i hope this makes sense?

P

HappyMJ

As you are paying tax at the basic rate you'd pay 20% on your profits so set aside £80 a month for tax.

If you sold you would put the money in the bank where tax is taken on the interest at source so no further tax to pay but you wouldn't earn as much income.

There's a risk the value of the property could fall but if you sold now there's a risk the value of the property could increase and as you have the money in cash you've lost out.

Me...personally..I'd keep the property as long as you can. Once you've sold your shares and spent the money in the ISA's then I'd consider selling.

atush

Basically, you will pay tax on the 400 a month (less any other costs incl maintenance etc). how much tax will depend on your income, and if you earn more than your PA each month.

your income at 800 per month would appear to be 9600 per year. So a small amt of the rent would not be taxable, but all of it over your PA will be taxed at 20%.

It wont be automatic though, you will have to do Self assessment and pay HMRC.

They might tax your pensions at source, if you tell them about the extra income, but SA would benefit you by being able to claim all the extra costs of your rental incl the management fees.

kidmugsy

newdave1975 wrote: »

similarly i could sell the property, giving me a lump sum. what would be my tax liability under this scenario? would the added sum of £120k in my finances push up my tax code?

If, as you say, the property sale would make you no capital gain, then there would be no CGT to pay.

The £120k of itself doesn't change your tax position. Interest on it is taxable, but from April 2016 onwards your first £1k p.a. of interest is tax-free. Moreover, your first £5k p.a. of dividend income will be tax free too. So you could put the £120k into a mixture of savings and investments (including in ISAs), and even contribute to a personal pension too, as an extra tax shelter.

How old are you? Are you in good health? Are you from a long-lived family? Do you have a spouse, children? I ask because it's possible that a good investment you could make would be to suspend your State Retirement Pension for a few years, and replace it by spending a bit of your capital. Then when you restart the pension you'd get an Extra Pension equal to 10.4% of your underlying state pension for every year of suspension. (They prefer to call it "deferral" rather than "suspension.) That means it's a remarkably good "investment".

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/372517/dwp024-102014.pdf

kidmugsy

newdave1975 wrote: »

similarly i could sell the property, giving me a lump sum. what would be my tax liability under this scenario? would the added sum of £120k in my finances push up my tax code?

If, as you say, the property sale would make you no capital gain, then there would be no CGT to pay.

The £120k of itself doesn't change your tax position. Interest on it is taxable, but from April 2016 onwards your first £1k p.a. of interest is tax-free. Moreover, your first £5k p.a. of dividend income will be tax free too. So you could put the £120k into a mixture of savings and investments (including in ISAs), and even contribute to a personal pension too, as an extra tax shelter.

How old are you? Are you in good health? Are you from a long-lived family? Do you have a spouse, children? I ask because it's possible that a good investment you could make would be to suspend your State Retirement Pension for a few years, and replace it by spending a bit of your capital. Then when you restart the pension you'd get an Extra Pension equal to 10.4% of your underlying state pension for every year of suspension. (They prefer to call it "deferral" rather than "suspension.) That means it's a remarkably good "investment".

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/372517/dwp024-102014.pdf

P.S. But if you receive any doles ("benefits") you want to check that linked booklet very carefully.

atush

similarly i could sell the property, giving me a lump sum. what would be my tax liability under this scenario? would the added sum of £120k in my finances push up my tax code?

there is a new savings allowance coming in that would help, but I would invest most of it in S&S isas, pensions etc.

Any investments or savings unwrapped you would pay tax on the income.

bigadaj

atush wrote: »

there is a new savings allowance coming in that would help, but I would invest most of it in S&S isas, pensions etc.

Any investments or savings unwrapped you would pay tax on the income.

In the next tax year there is obviously a £5k tax free allowance on dividends. With typical yields around 3-4% then the dividends from a sum similar to the OPs could be paid with no tax to pay.

Not a recommendation but an option.

newdave1975

thanks for everyones reply, it is very much appreciated. food for thought on many points. Im 67 and in general good health. dont have much family, so basically what i have is my own, no other considerations. i was just interested in any possible tax liabilities with my 2 options. renting would boost my income, but downside renting can be problematic, although i have somewhat negated this by letting my agent fully manage the process. and as a plus i still have the property to sell later, maybe when prices improve.
also i could just sell on the property and look to distribute the lump sum into safe places. i got bitten during the 2008 crash badly with the banks, so not keen on stock/shares at the minute.

P

newdave1975

atush wrote: »

there is a new savings allowance coming in that would help, but I would invest most of it in S&S isas, pensions etc.

Any investments or savings unwrapped you would pay tax on the income.

what is this new savings allowance? do you have any more information? a link?

P

xylophone

what is this new savings allowance?

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/414026/Savings_factographic_final.pdf

newdave1975

thanks ill take a look

P