Letting my house, tax, capital gains etc...

delmonta

Hi

First please excuse my lack of knowledge on everything I am asking about! Here goes...

I bought a 3 bedroom house in Bristol 6 months ago, and have been living in it, with two friends living there for free, just paying bills.

It's looking likely we are all moving out in a month or so. At first I considered keeping my room and renting out the other two to friends, as I am able to have two lodgers under the rent a room scheme.

But I am now looking to rent the whole house out, and probably with a letting agent as it will suit my situation.

Firstly, I am a little worried about having to pay capital gains tax when I sell the house if I move out and rent it. I plan to sell the house in a few years after doing a bit of work. I'm still quite confused about Capital gains tax, and if it will affect me and how much. Whether it would be better to stay at the house, and rent the two other rooms as I know then I am exempt.

Also, I have only ever worked for people where tax was done for me, never been self employed and had to do my own tax return. So I am wondering how complicated it is to do my own taxes if I am renting out the house. Or is it better to employ an accountant? Something Ive also never done!

And if I start renting out in December say, then would my first tax return have to be sorted for April coming, or the following one? Sorry if these are silly questions!

Any info would be greatly appreciated, thanks

HappyMJ

Capital gains tax will affect you if you rent out two rooms but not by much if at all. You don't pay for your room and the common areas. You only pay based on the floor area of the rooms that are let out. You have a capital gains tax exemption limit in the year in which you sell which you will most probably be under. You can also claim the capital costs of improving your property against any gain to minimize your capital gain.

If the income from renting rooms out is under the annual limit of the rent a room scheme you don't need to do anything. If it exceeds it you'll need to fill out a self assessment and it's very easy.

delmonta

Hi Happy MJ,

Thanks for the quick reply...

So I am more looking towards renting out all three rooms, the whole house. Through a letting agent. So I would live elsewhere and just making money from it.

But i do plan to sell in 2 or 3 years, so what will that mean for capital gains tax? And for income tax, is it still simple

Thanks again

Mojisola

delmonta wrote: »

I bought a 3 bedroom house in Bristol 6 months ago, and have been living in it, with two friends living there for free, just paying bills.

It's looking likely we are all moving out in a month or so.

But I am now looking to rent the whole house out, and probably with a letting agent as it will suit my situation.

Will your mortgage company give permission?

delmonta

Sorry, I forgot to say! I own the house outright, so there is no mortgage

booksurr

read this post for how to calculate CGT for a property that you once lived in and then let prior to selling up:
http://forums.moneysavingexpert.com/showpost.php?p=69071134&postcount=6

as for self assessment it is simple enough. Rental income - costs = profit.Pay tax on said profit. Loads of websites explain the basics - do some of your own research! (BTW, in tax terms you are not self employed if all you are doing is letting property. Self employment has a specific meaning for tax, don't use it incorrectly)

Bluebirdman_of_Alcathays

You are already liable for Capital Gains, as you've let out more than 1 room since you've owned it. Yes, it may be covered by the various reliefs available, but there are already complications in play that need to be considered.

delmonta

Hi Booksurr,

Thanks for the link. It seems that in my situation, that selling in a few years for a smallish profit, would incur no CGT. So thats good!

Sorry for using the term self employed wrongly!

Bluebirdman. I've actually just been letting a couple of friends stay, unofficially for some money for bills. And its only been a few months, so really I dont think that weighs in.

Thanks for all the help, really appreciate it

booksurr

delmonta wrote: »

I've actually just been letting a couple of friends stay, unofficially for some money for bills. And its only been a few months, so really I dont think that weighs in.

what you think and how HMRC will define it are not linked. Contribution towards bills from someone who you are not sleeping with means they are lodgers under the rules of the Rent A Room allowance and so that counts as rental income even if you deny it that name.

the CGT rule is black and white. More than 1 lodger and you lose CGT exemption, but as per earlier link you may not end up paying any after PRR, LR and personal allowance are calculated

your next question therefore is either a) I am honest and have personal integrity so will declare the money correctly and claim the £4,250pa RAR allowance and calculating my CGT expecting both to leave me with no tax payable or b) I am dishonest but think no one will dob me into HMRC so I will not say anything to anyone and evade

delmonta

Hi Booksurr,

Wow, well even if they are the rules, its hard for me to see why I should be liable to consider it a factor, as I've made no money from my friends. I've probably lost money, theyve literally just covered their share of the bills. I thought I was just helping them out!!

Either way it seems, whether in your eyes I was 'honest' or 'dishonest', I wont have to pay any CGT. So I dont see how it is evading.

Anyway, I appreciate the help. I just don't think it's good to judge personal integrity and honesty on the (often arbitrary )rules of the tax office.

Guest101

delmonta wrote: »

Hi Booksurr,

Thanks for the link. It seems that in my situation, that selling in a few years for a smallish profit, would incur no CGT. So thats good!

Sorry for using the term self employed wrongly!

Bluebirdman. I've actually just been letting a couple of friends stay, unofficially for some money for bills. And its only been a few months, so really I dont think that weighs in. - Irrelevant, you've received payment in exchange for accomodation.

Thanks for all the help, really appreciate it

Srry to burst your bubble, but if you take money, they're lodgers, not guests