Capital gains etc on renting out "spare" flat.

vivvov

Hello All

Situation: OH and myself have started living together. We both own flats outright in London (Haringey and Hackney..both areas of rapid double digit percentage price increases over the last few years).
I just lost my job so it seemed a sensible idea and there's no really likelihood of us separating since we've been together since dot....luckily I'm in the position of being mortgage free and have my flat "spare".
I've moved out of my flat and it is now empty and was thinking of selling it due to it being surplus to requirements but what with it being in zone 2 and in an area that's seen prices rocketing..(no more gun shots just hipsters in skinny jeans)..I thought renting it for a year whilst I figure out what to do might not be a bad idea.
I talked to a local Estate Agent and they provided an evaluation and an estimate for monthly rent...it's a serious amount/more than I expected even if I got them to manage it...(which would part compensate for being out of work).

The flat has been my primary residence since 2002 when I bought it..I let it out Sept 2011 through to August 2014 (necessary income tax was duly paid)..then returned and have lived there up until now.
My main question is would there be any the tax implications if I rent it out my flat for a year prior to putting it on the market?
I realise I'll have to pay Income Tax on the rental income....that's the easy bit.
Would there be any issue with it not being my primary residence..any Capital Gains Tax issues or ?? other tax implications.

I know I'll get helpful answers so Many Thanks in advance

HouseBuyer77

See here https://www.gov.uk/tax-sell-home/private-residence-relief

You only get CGT relief on your main residence. (So if you're living with your OH and your flat is left empty it's not your main residence). Maybe if it were empty for a few months between moving out and selling you'd get away with it but if you're going to be renting it out it does have CGT implications.

Don't forget the income tax on the rent.

Or the potentially higher council tax for an empty property.

AlexMac

Yeah blah blah ... HMRC website blah blah.... but being realistic, and without checking the detail... its not a big deal in your circumstances.

There used to be reliefs for ownership and lettings relief (as I found when I was in your position), but even if these have been modified or abolished by the cheetin bsted politicians, you have an £11 grand annual capital gains allowance.

So if you were lucky enough to make more than an £11k gain, you'd pay a bit of tax ... but how lucky are you to have a spare property! Tax is good. No tax=no schools, hospitals, traffic lights, etc (rough if you never plan to have kids, get ill or cross the road but I do all three!)

And doing the tax return online on rental income is a piece of p155... by the time you factor in allowances for loan interest (albeit reducing, but the changes are only a problem for high rate taxpayers), service charges, gas safety inspection costs, maintenance and renewals you'll pay little tax; and in the areas you mention I bet you will continue to enjoy house price inflation.

If its rentable and you can cope with being a LL, you should keep it. I started off as an accidental landlord 20 years ago and never regretted it- so I kept the gaff and have enjoyed almost 600% inflation on capital value. So when I sell or snuff it, the kids or I can happily pay the CGT or IHT...

After all, you only pay tax on the gain if there is a gain; we should be so lucky!

G_M

vivvov wrote: »

My main question is would there be any the tax implications if I rent it out my flat for a year prior to putting it on the market?
I realise I'll have to pay Income Tax on the rental income....that's the easy bit.
Would there be any issue with it not being my primary residence..any Capital Gains Tax issues or ?? other tax implications.

I know I'll get helpful answers so Many Thanks in advance

Yes CGT may be payable, depending on gain in value, and % time it was main residence/not main residence.

For more on letting generally, see:

* New landlords: advice, information & links

* Letting agents: how should a landlord select or sack?

both from:

* Tenancies in Eng/Wales: Guides for landlords and tenants

booksurr

HouseBuyer77 wrote: »

See here https://www.gov.uk/tax-sell-home/private-residence-relief

You only get CGT relief on your main residence. (So if you're living with your OH and your flat is left empty it's not your main residence). Maybe if it were empty for a few months between moving out and selling you'd get away with it but if you're going to be renting it out it does have CGT implications.

you may be trying to help but it is obvious you have no idea how CGT works since it misses the point of how main residence relief and letting relief actually work

vivvov wrote: »

Would there be any issue with it not being my primary residence..any Capital Gains Tax issues or ?? other tax implications.

you will be liable for CGT, however, the impact of Private Residence Relief, plus Letting Relief mean that (even with London inflation) it is unlikely you would have any tax to pay for a very long time even without having to use your Personal Allowance

see this question from earlier today for the mechanics of how to calculate your liability ...
https://forums.moneysavingexpert.com/discussion/5534193

getmore4less

Once you have the calculations to hand you can do a what if for a years time with current value and any new value.

You have 35month of let time already so can do the calculations for today.

You might not want to go down the route but have you priced short term lets like Airbnb

vivvov

Thank you so much for you answers..and thank you booksurr for the calculation.

Hopefully my calculation is correct and being upfront on the figures in order for clarity's sake:

Based on the purchase price in 2002 (105,000) and likely selling price a year hence (300,000) plus excluding last 12 month renting as "deemed occupation"
Calculation wise it seems (looking into the future a year hence):
Calculation
1. Gross Gain: 300000 - 105000 - 3,500 (EA Fees) = 192500 gain

2. Private Residence Relief 192500 x (144mths/180mths) = 154000

3. Letting Relief - this value is limited to the lowest amount of a) or b) or c)
a) PRR value calculated at 2 above = 154000
b) gain during the let period: 192500 x (36mths/180mths) = 38500
c) Maximum allowed value = 40,000
the lowest is therefore b) = 38500

4. personal allowance £11,100

5. Net Taxable Gain
Gross gain - PRR - LR - PA = ?
192500 - 154000 - 38500 - 11100 = ZERO ( minus 11100).

Zero to pay....

booksurr

vivvov wrote: »

Zero to pay....

correct. Despite London inflation rate being higher than I had realised, the 36 month period in 2011- 2014 when you let it is still just less than the cap on letting relief so your gain is fully covered by PRR and LR leaving your personal allowance untouched for now.

vivvov

...crazy that house prices have done what they've done in my area..it's a different world but back then my area wasn't everybody's cup of tea back then.. waking out of slumber to hear a gun battle, then have the whole estate cordoned off with a small army of officers on their hands and knees doing a sweep for shell casings and someone being carefully removed to the morgue. At the time that shooting (plenty of others) started I thought, I'm second floor in a brick built block..it's going to be a strange ricochet that gets me..and went back to sleep.
Forget micro breweries, Aldis etc opening in the area..Hearing routine gunshots..time to buy!..just make sure it's not groundfloor and don't get up and switch the light on for a look.

Marvel1

Aside from having the letting agent manage the property, starting a landlord business you still need to know the law of being a landlord and rights of the tenant, as you are still responsible.