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Renting out our property to rent somewhere else
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CGT
as it appears to have always been your main/only home since date of purchase, then from the date it ceases to be your main/only home you have a 9 month window in which you can do whatever you want with it, leave it vacant on the market or let it and then sell it before the 9 months expires. CGT is not applicable in that period.
But once those 9 months are up, you become liable for CGT based on the difference between what it sells for and what you bought it for (less certain costs as mentioned by others). That £ gain is then split into two parts based on the total time you owned it
- for the time it was your main home (ie to date you actually moved out) + the 9 months extra that gives a % of the total ownership period and that period is exempt from CGT
- the remaining balance of time is the period liable for CGT since it was not your main - whether let or vacant during that time is irrelevant, what matters is you simultaneously owned > 1 property and only 1 of them can be your main (exempt) home at a time.
Putting numbers to a simple example (ignoring cost and the fact "we" own it)
purchased it for £200,000 sold it for £400,000, owned for 20 years in total (240 months = 100%) and moved out of it at the end of year 18. Final 2 years comprised periods when it was let and/or vacant, and/or on the market
£200,000 gain
exempt time portion: 18 yr 9 mths = 225 mths / 240 = 93.7%
CGT time portion: 100% - 93.7% = 6.3%
Amount liable for CGT 200,000 x 6.3% = 12,600 less your CGT allowance (currently 3k)
net taxable gain 9,600 on which you'd pay CGT at 18% (so £1,728 of tax) or 28% (£2,688 of tax) depending your respective tax bracket
never lose sight of the big picture.
"We'd" get £400,000 cash from the sale and from that "we'd" keep £398,272 after paying CGT.
As it appears the property is owned by "we" then the above calculation would be done by each individual using their respective ownership share, for example if "joint" owners 50/50, then each person's gain would be 100k not 200k1 -
Addison89 said:I have done some reading and I understand we would need to pay income tax, EA fee (I think it’s 4%) and landlords insurance. Obviously maintenance cost when needed.
In terms of agent,I decided to go for an online agent with a fixed price rather than a percentage of rent, as it was London so high rent. The agent I chose was Lettingaproperty. There are some pros and cons of this and it may or may not be better than a local agent depending on what you want exactly. Personally, I found it quite easy to manage non-urgent issues despite being in other countries as it is now routine to manage and pay tradespeople entirely remotely, although of course that comes at a cost (but less than relying on an agent to book things).
As well as the costs macman outlines above, remember to include costs such as boiler service, inventory, tenant referencing, mid-term inspection, and costs to serve notice if you get the agent to do that. In addition to buildings and contents insurance you may want insurance to cover non-payment of rent and/or eviction costs.
I'd really think this would be quite a way down your priority list, even if you are sitting on a big gain that will be compromised by a period of letting out.Addison89 said:My question is, is there a way to avoid paying CGT?
A key concern is what you would do with this in the longer-term. If you plan to sell it, then you are either going to have to take a hit on value and try to sell with either with a tenant in situ, risk selling with tenant who is due to move out which could all go badly wrong, or get tenant out prior to selling. Assuming you choose the latter, then you are probably looking at some repairs/redecoration prior to marketing and then maybe around 4 months of the house being empty during the sale process. On the plus side, being chain-free could be an advantage.
My experience was pretty much okay - we rented out our property for the time we wanted, rent was paid on time and the property returned in an okay condition. Even so, dealing with tenants and their problems can be tiresome. I knew what I was getting myself in for, and only did so as I concluded that although I did not want to rent my property out, I also did not want to spend a couple of years out of the property market given the economic and inflation position in 2022 when we left the UK.
Taking into account all the various charges and taxes, the yield isn't worth it - income tax and CGT combined amounted to 30% of the gross rent received.
I'd only rent a single property as a last resort, it is just all too much trouble for what you get in return.
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OP, where i live up North there are loads of ex rentals coming up for sale with landlords getting out of the rental business. It's becoming ever more difficult to be a small landlord and there's not so much gain either. Personally, I wouldn't want the hassle of renting my own home out, whilst renting somewhere else where the rent may well go up every year and sorting out all the cross financing and taxes. I'd keep it simple.
Mind you, 3 months isn't that long on the market either. We put ours up in October, sold in February, back on the market in March as buyer pulled out, still on the market. I'd be asking the EA what you can do to sell quicker - what if any feedback has there been, does the ad need updating/changing, are there small/cheap things you can do to make it more sellable. It's not always price. Ours is a perfect first time buyer property but most of our buyers were initially expecting a perfectly modernised house even though it's an over 100 year old mid terraced house. The price is right but people didn't want to do the work. We've changed the ad and made it clear that it's liveable in but needs some modernising (kitchen and bathroom are old but serviceable), and the viewers are a bit more realistic. We mainly seemed to have missed out on buyers due to there being a high number of houses compared to buyers at the minute in our area.1
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