Should I try to sell my buy to let property?

13Kent

I have a property which I used to live in which is currently rented out. It's probably worth about £140k and it currently has about a 90k interest only mortgage on it. The mortgage was £170 a month has currently ended and has risen to £370, but I haven't changed the mortgage as yet as I am considering selling and it would cost to start a new mortgage and also to get out of a mortgage if the property sold. It has tenants in at the moment and the rent is £600pcm with agents fees of £60pcm, so when the mortgage was £170 it was a nice little income each month.

With the new tax rules for landlords including capital gains I am wondering if it would be better to try and sell the property before April ( I think selling after April would incur £7k in capital gains tax).

The house is not a modern house, although it has been well maintained over the years, and has been re-decorated/ re-carpeted between tenants, and has had some electrical work done such as wired in smoke alarms, it has a central heating system that has been in place for 25 years (albeit with a recent new boiler). The house was fully rewired 25 years ago, the double glazing is 25+ years old, and the conservatory is about 15 years old.

I could change the mortgage to about £150 a month (at a cost of about 2k which will be added to the mortgage) and carry on as I am with a nice little income of about £400 a month from the house, which was the plan was - to have it as a little pension income in 10 years or so time.

However, I have begun to realise is that sooner or later the house will need money spending on it to renew big things like the double glazing etc, and with the tax changes maybe it won't be the investment for the future that I had initially planned it to be.

Can anyone offer any advice please, I can't decide what to do for the best, and for every month I prevaricate the mortgage is costing £200 a month more than it should be doing but I don't want to spend money changing it if I plan to sell....

Thank you.

Retired_Mortgage_Adviser

Based on 140k value, 90k o/s mortgage, 600pcm rent and the other expenses you have mentioned (£150/month mortgage, 60pm letting agent fee) and assuming a small void and maintenance expenses, roughly speaking, your return on investment (the cash you have tied up in the rental) is about 7-7.5%.

I personally would not take forward a BTL with an ROI of less than 10%, unless it was in an area in which there is a reasonable expectation of decent capital growth. But then, I always aim to hold my BTL investments at 70-75% LTV. That forces me to make sure that there is sufficient yield to meet the stress tests.

There is no alternative to running the numbers, it's hard to advise on what to do without the whole picture.

Will you can make a decent amount in capital growth by selling the property now, that would be a factor as well.

13Kent

The house is not in an area where house prices rise steeply. If I chose to sell my plan would be to use the profit to pay off part of the mortgage we currently have on the property that is our home, (mortgage £150k, property value £400k, 15 years left) but I don't think it would bring the monthly mortgage payments down by the income currently provided by the buy to let property.

Retired_Mortgage_Adviser

In that case, I myself would think of selling the property before it gets to the stage where it is hard to let without doing some major work on it.

On the other hand, if you have a long standing tenant who is looking after the property well, AND you have done the numbers and are sure that you are making some money after tax, there might be no harm in continuing as is for a while, considering that you have no major plans for the money other than to pay down a sub 40% LTV residential mortgage .

I'm not entirely clear on which specific changes to the CGT rules for landlords from 2020/21 you are talking about, but for a house of value 140k, it is unlikely to mean that you pay 7k more CGT than you would in 2019/20.

13Kent wrote: »

The house is not in an area where house prices rise steeply. If I chose to sell my plan would be to use the profit to pay off part of the mortgage we currently have on the property that is our home, (mortgage £150k, property value £400k, 15 years left) but I don't think it would bring the monthly mortgage payments down by the income currently provided by the buy to let property.

El_Torro

One thing to bear in mind is that the housing market isn't great for sellers at the moment. If you wait a couple of years (or wait until Brexit is resolved, whichever comes sooner) then you might find that you get a much better price. This varies depending on where in the country you live of course.


Based on the information you have given us I don't think there's a big urgency to sell now. As mentioned I'm not sure you're correct in thinking that you'll have to pay £7k more in CGT next year.

13Kent

Thank you for your advice it's much appreciated.

tom9980

Retired_Mortgage_Adviser wrote: »

I'm not entirely clear on which specific changes to the CGT rules for landlords from 2020/21 you are talking about, but for a house of value 140k, it is unlikely to mean that you pay 7k more CGT than you would in 2019/20.

https://www.macintyrehudson.co.uk/insights/article/capital-gains-tax-planning-plan-ahead-for-april-2020-changes

It is a very significant change that most people are unaware of, you also have to pay the tax in 30 days rather than by the end of January the next year. In the example given a £200,000 gain increases the tax from £10k to £26k after april 2020.

Retired_Mortgage_Adviser

I'm aware of the changes mentioned in the article. But even with all that, I struggle to see how they would amount to a difference of 7k in CGT due, for a property of current value 140k in an area of low capital growth and assuming OP has use of the full annual CGT exemption of 12k. It could well be the case depending on the specifics.

The example in the article is talking about a gain of 200k leading to a 16k hike in CGT.

OP, we can calculate the potential difference in CGT between 2019/20 and 2020/21 - when did you buy the property? for how much? How long did you live in the property for? are you a basic/higher/additional rate taxpayer? do you own it jointly with anyone else?

tom9980 wrote: »

https://www.macintyrehudson.co.uk/insights/article/capital-gains-tax-planning-plan-ahead-for-april-2020-changes

It is a very significant change that most people are unaware of, you also have to pay the tax in 30 days rather than by the end of January the next year. In the example given a £200,000 gain increases the tax from £10k to £26k after april 2020.

13Kent

After 2020:


Increase in value is £90,000
Remove costs of buying/selling c.£2k as an estimate so £88,000


The time it was your home plus the final 9 months of ownership is exempt as a proportion (should be done accurately but using years as an example).


So 10 years lived plus 3/4 years is 10 3/4 over a total 28 year period. Therefore 10.75/28 is exempt being £33,786.


So £54,214 still potentially taxable.

your 95% is 51,504,


You have a CGT allowance of 12.5k, leaving 39,004. Then deduct any personal allowance you haven't used. The remaining amount will be taxed at 18%. (a very small amount may be at 28% but the 20/21 values haven't been announced yet, so I wouldn't worry).


Basically, you could be looking at a tax bill of around £7,000.

Retired_Mortgage_Adviser

Ah, that makes sense now. 90k gain on proceeds of 140k and the details below would mean a tax bill of ~1.5k vs 7k if you sold in 2020/21. Primarily down to the severe restrictions on lettings relief coming in for 2020/21.

13Kent wrote: »

After 2020:

Increase in value is £90,000
Remove costs of buying/selling c.£2k as an estimate so £88,000

The time it was your home plus the final 9 months of ownership is exempt as a proportion (should be done accurately but using years as an example).

So 10 years lived plus 3/4 years is 10 3/4 over a total 28 year period. Therefore 10.75/28 is exempt being £33,786.

So £54,214 still potentially taxable.

your 95% is 51,504,

You have a CGT allowance of 12.5k, leaving 39,004. Then deduct any personal allowance you haven't used. The remaining amount will be taxed at 18%. (a very small amount may be at 28% but the 20/21 values haven't been announced yet, so I wouldn't worry).

Basically, you could be looking at a tax bill of around £7,000.

13Kent

Yes hence my quandary!