Accidental landlord - should I rent or sell? (income tax vs capital gains tax)

josied

Hi, I'm wondering if someone can help me... 

I have a residential mortgage, but recently relocated for my partner's work. The bank have given me consent to let for upto 12 months, but my mortgage term will end in the summer of 25.. at which point, I will need to look for a buy to let deal with another provider. 

I'm already in the higher tax bracket, so will pay 40% tax for the rental income - which only just about covers the mortgage payments... so it's by no means a profitable solution. 

I understand mortgage rates may fall slightly, which I'm hoping for in the next few months.. although moving to a buy to let may negate any benefit. 

I decided to rent out the property myself, but it's been a nightmare to manage so far, so will now put it in the hands of an agent. 

Because the rules for landlords are also changing (removal of section 21, and poss fixed rental agreements) - and because of the costs involved for me to keep it, I am also considering selling the property. But I'm not sure how much capital gains tax is going to cost me. 

Where can I get help working this out?

And has anyone else come up against this battle of rent out vs sell ? Keen to hear others' experiences - what are you thinking / what did you choose? What factors came into play for you? 

Jeremy535897

Have a look at https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief-2024
Your gain will be selling price, less costs of sale (legal fees and estate agent fees), less improvements, less purchase costs including costs of acquisition. You can exempt the proportion of the gain that relates to your occupation of the property as a main residence, plus the last 9 months of ownership (HS283 covers other possibilities for exemption where relevant). You also have an annual exemption of £3,000.
As a landlord, you might find this blog worth subscribing to (it is free):
https://theindependentlandlord.com/
There are a number of factors to consider, and this blog discusses the Renters Rights Bill in detail, which is expected to become law next year. It is also worthwhile noting that any rented property will potentially be required to have an EPC rating of C or better by 2030.

penners324

It's such a huge admin headache to rent out a property.

I'd sell it.

Capital Gains Tax will be very small.

Bookworm105

CGT rate certain to increase in the budget at end of this moth but, on the info presented in your post, selling it seems the best option 

as others have explained, CGT will be relatively small given it was once your main home, and that exemption cannot be removed in the budget or the whole economy would collapse overnight.

Money_Monkey

House prices over the long term will always go up. 

Every situation is different, and at times over the years I have felt the same way and wanted to just get rid of the property, but I still keep coming back and remembering how much I paid for it and it's value (on paper) now.

In the future this asset will provide a nice income to our family and the wealth passed on.

If you can get a better return (both financially and mentally) than sell it.

Gaberdeen

I ended up in exactly the same place as you around 10 years ago and honestly I wish I'd just sold the flat and moved on.

At the time, I'd just finished spending a fortune renovating the place and my inner MSE wouldn't let me take a bath on losing all that money, so I also became a reluctant landlord.

Couple of nuggets for you.

You technically don't need to do another deal with your provider, consent to let can remain in place as long as you have the same mortgage deal. Your bank will not chase you to renew. You will definitely pay more than locking in a buy to let deal as it rolls onto a variable tracker, unless...

You can offset the mortgage with significant savings so that the mortgage principle is being paid with 100% of the monthly payment. Your bank should be able to facilitate this. Note that you cannot do this with joint accounts unless the mortgage is also in joint names.

Tax on property income is probably going to be 40%, add in all the fees associated with the agent, safety checks and crucially bills when the property is vacant and the costs soon eat any profit you might have made.

You can accumulate tax losses on property that can offset any tax due (CGT) once you sell, but honestly it's a paper thing excuse to keep leasing it out instead of using the money elsewhere.

By contrast, ISA savings, interest and dividends are tax free, and you can bed and ISA stocks that you have already hold so there's almost a seamless transaction from one tax year to the next.

Good luck in whatever you decide.

Hoenir

Gaberdeen said:

You technically don't need to do another deal with your provider, consent to let can remain in place as long as you have the same mortgage deal. Your bank will not chase you to renew. You will definitely pay more than locking in a buy to let deal as it rolls onto a variable tracker, unless...

Lender can load whatever additional rate it wishes. Letting the property without permission is also a breach of the mortgage terms and conditions. All power lies with the lender. 

sheramber

Gaberdeen said:

I ended up in exactly the same place as you around 10 years ago and honestly I wish I'd just sold the flat and moved on.

At the time, I'd just finished spending a fortune renovating the place and my inner MSE wouldn't let me take a bath on losing all that money, so I also became a reluctant landlord.

Couple of nuggets for you.

You technically don't need to do another deal with your provider, consent to let can remain in place as long as you have the same mortgage deal. Your bank will not chase you to renew. You will definitely pay more than locking in a buy to let deal as it rolls onto a variable tracker, unless...

You can offset the mortgage with significant savings so that the mortgage principle is being paid with 100% of the monthly payment. Your bank should be able to facilitate this. Note that you cannot do this with joint accounts unless the mortgage is also in joint names.

Tax on property income is probably going to be 40%, add in all the fees associated with the agent, safety checks and crucially bills when the property is vacant and the costs soon eat any profit you might have made.

You can accumulate tax losses on property that can offset any tax due (CGT) once you sell, but honestly it's a paper thing excuse to keep leasing it out instead of using the money elsewhere.

By contrast, ISA savings, interest and dividends are tax free, and you can bed and ISA stocks that you have already hold so there's almost a seamless transaction from one tax year to the next.

Good luck in whatever you decide.

You can accumulate tax losses on property that can offset any tax due (CGT) once you sell

No, you cannot. Losses can only be sset off against future profit from letting.

Albermarle

And has anyone else come up against this battle of rent out vs sell ? Keen to hear others' experiences - what are you thinking / what did you choose? What factors came into play for you? 

It is a regular/common topic on this forum.

House buying, renting & selling — MoneySavingExpert Forum