Renting out Home to downsize

AnotherJoe

David_A wrote: »

Just feels stange that the Tax system may stop me from moving to a smaller house.

But it isn't doing that

It may stop you buying a second house, but that's a very very different thing.g

Owain_Moneysaver

David_A wrote: »

It just appears that the Tax system is encouragiung me to stay in a house that is too big for me.

Although you can't claim your personal rent as an expense, you can claim some of the expenses in maintaining the rented property, and of course you have your personal allowance(s) if these aren't used by other income.

The tax-efficient way is to rent one or two bedrooms in your current house to lodgers using the rent a room scheme, and the income from this (up to a certain amount) is tax-free, but you can't claim expenses.

booksurr

David_A wrote: »

I had read all the Government info on being a Landlord.

but you haven't understood it.

David_A wrote: »

It was purely the issue of finding that I may not be able to afford to move somewhere smaller, as my rental income after tax may not cover my new rent.
Just feels stange that the Tax system may stop me from moving to a smaller house.

it is nothing to do with the tax system. You cannot possibly expect to be able to offset an income stream against a normal living expense that everyone has to pay, just the same as everyone has to earn the money to be able to buy food to eat. You earn a salary, apy tax on that income and then spend the money on mortgage or rent. Those are personal living costs, they have nothing to do with business and so are not allowable/eligible costs, that is the wording you have not understood. Businesses have allowable costs, your personal costs are not an expense of the business of letting your property.

there is a phrase do not let the tax tail wag the dog. You are in danger of that.

I can sympathise that you do not want to burn your bridges so wish to experiment with living in a smaller property without having any way back to a bigger one if it does not work out. therefore an experiment with a small rented property makes sense, but not if you base the decision on whether the whole thing must be self financing because the rental income from letting covers the rental payable. Your objective is to see if you can live smaller. If you can then you can sell up and own a smaller property, your experiment of renting is then at an end. Your experiment is not about whether you can make money, it is about can you live smaller, so stop blaming the tax system because it is not what is stopping you. What is stopping you appears to be your reticence at the idea it make not be self financing so you won't try it?

LittleMax

marksoton wrote: »

I'd just sell and buy and be done with it.

Anything else is a PITA.

Our next door neighbours did that - 12 months later they sold up and bought a new house almost identical to the one they had downsized from. They lost a fortune - bet they wished they'd rented their old house out and could have gone back.

G_M

I am a taxi driver. I earn money by driving a cab.

But I also have a family car which costs me money to run.

Can I offset the costs of running my family car against the tax I have to pay on my taxi income?

It seems unfair that I have to pay MOT, insurance, repairs etc on my family car, but then still have to pay tax on my income.

David_A_2

To be clear, I was going to rent out my house for approx. £2K per month & rent somewhere smaller for £1.5K per month. As a 40% tax rate payer, that means my Net Rental income will be £1.2K per month so I will have to find an additional £300 per month to live in a smaller house. This wasn't about trying to make money by downsizing but I certainly don't want to make myself financially worse off by doing so.

Maybe its just me, but living in a smaller cheaper house & being worse off financially seems strange, hence my initial question regarding how the Tax system treats this.

But I guess it is what it is. So I am back to downsizing & being £300/Month worse off, or staying put in a house thats too big.

- Although thanks for the thought about renting out room(s).

westernpromise

PersianCatLady wrote: »

The tax system isn't encouraging you to do anything.


If you want to live in a smaller house, sell up and buy one.

The tax system specifically discourages doing that. If you have a £500k house and you sell and buy another £500k house (a smaller one nearer your family, for example, or in a popular location), you will pay about £10k in transaction costs but a further £15k in stamp duty. That's a constructive 150% tax penalty on top of the actual transaction costs.

I'm aware of the tired old argument that the real transaction is the £500k not the £10k, but this is always raised to "prove" that the tax is easily affordable because there's all this free money sloshing around that no one will miss. In the case, however, of someone doing a sideways move there is no money sloshing around, the buy and sell are at the same price and hence this all has to found out of pocket.

When you sell a £1.5 million house and replace it with another, the tax penalty rises to around 500%. As a result, rather than blowing £120,000 on putre costs for which you get back absolutely nothing, people in that bracket don't move, they extend, which trashes the appearance of the neighbourhood, reduces availability and makes small houses larger at the expense of the green space around them.

This is why parts of suburban London now look like this

https://www.google.co.uk/maps/place/44+Leeside+Cres,+London+NW11/@51.5805385,-0.2048204,17z/data=!3m1!4b1!4m5!3m4!1s0x487610bce27788c7:0x845300dd32097d6f!8m2!3d51.5805352!4d-0.2026317

A fairer system would be to charge stamp duty on the square footage - so it wouldn't all fall on London and the south-east - and to charge it only on the difference between the place sold and the place bought. A downsize that freed up a large space would then attract no SDLT at all.

Mossfarr

If you earn enough to be in the 40% tax bracket you won't exactly be suffering any hardship will you? If you do what you are considering for 12 months you may even break even as your own home will probably have increased in value.

Pixie5740

Why isn't selling your current home and buying a smaller home an option? Surely, even after SDLT, solicitor's fees etc you'd be left with some cash in the bank too.

I don't know why you're making out as though you're hard done by when you're anything but.

David_A_2

Thanks Pixie for the judgmental reply.

I came on here as I wasn't sure about the Tax position. I have had that clarified.
It works as a disincentive for me to do what I was looking to do, thats all.

To me its like going into Tesco, filling up my trolley then taking a quarter of the shopping out yet ending up paying more than I would have done for the fully trolley. Somewhat annoying but, I still have the option of keeping the full trolley.

So I'm not hard done by, just surprised.