Sell or rent out property

Zacwhite

I am looking at buying a property with my partner. I am in the fortunate position of being able to choose whether to sell my current house or rent it out and pay for a new property with cash. With such pitifully poor interest rates and with property prices continuing to rise, I am tempted to do the latter. However, what would be the tax implications when I eventually do sell my current property as it would no longer then be my main residence ?

AdrianC

You will pay +3% SDLT on the purchase of your additional property.
You will pay CGT on any increase in value of your let property when you sell it, pro-rata'd between the time you were resident there and the time you let it.
You will pay income tax on the profits of your lettings business.

What do you think is a realistic net yield for the lettings business you are considering starting, and how are you working that?

yksi

Properties rising in value is not a given - I am seeing the opposite in my corner of the world and the full impact of lost jobs and repossessions on the market prices won't be felt until next year. I would think that property isn't a secure or surefire investment right now compared with banks or stock markets. AdrianC is bang on in suggesting you do some sums and look realistically at what you might expect to earn from it. But you might have other reasons to hold onto the property which make good sense, like having an insurance policy in case things don't work out with your partner.

Mickey666

I wouldn’t be too worried about the tax implications of keeping and renting out the property, because taxes are only paid when you have made a gain.  Thus, you’ll only pay CGT if you sell for more than its current value and you’ll only pay tax on the extra income you make from letting, so you’ll still be better off.
I’d say the bigger issues (than tax) are the risks (property values fall, property lies empty, bad tenants etc) compared with other investment possibilities.  Also consider whether you really want to be a ‘hands-on’ landlord of pay a letting agent to manage everything.  A good agent will certainly make things easier but at a cost of course, probably around 10% of the rent (tax deductible though)

Plus, as pointed out, if the new relationship doesn’t work out, having a home to return to might be considered to be a good safety net.  These are the more intangible things to consider.

oldbikebloke

since you know "tax" is NOT @ 100%, why are you even considering the tax implications?
old saying: do not let tax tail wag the dog when evaluating investments 

greatcrested

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Post 9: Letting agents: how should a landlord select or sack?