Opinions on selling a BTL

hallmark

Hi all

In 2012 I moved and I began to Let the house I previously lived in (owned outright, no mortgage).

I've Let to the same tenant ever since, and it's been fine, however she's just served notice she's moving abroad end of August.

Essentially, three questions for info/opinion/possibly advice

Q1. Should I sell up. These are the pros & cons I can think of:

Pros
The legislation around BTL is (IMO) increasingly tough on landlords and that trend is unlikely to change
There are other changes being introduced (such as raising the Energy Rating) that will involve effort/expense
The tax treatment of BTL profits is about to get worse (i.e. 22%/44%) and it's entirely possible that might increase further at some point
I'd shortly be within the MTD threshold, which will also involve extra effort and expense
I've always had a good relationship with my tenant but you can't guarantee that in future and I really do not want even the possibility having to deal with a problematic tenant

Cons
A small amount of emotional attachment to the first house I ever bought, which I owned from new
If I ever wanted to do BTL again I'd incur the SDLT additional charge
A house is a nice (literally) solid asset. I'm not really bullish or bearish on house prices but it's unlikely to do horribly versus other asset classes IMO.

For me the pros of selling substantially outweigh the cons, but am I missing anything?

Q2. Maths
Based on the following
Purchased for £80K Dec 1997 costs £3k
Likely sale price maybe £380K costs £5k
Lived there Dec '97 - Oct 2012 i.e. 177 months

Does this look roughly correct?

CGT without PRR Relief = £300,000.00
Private Residence Relief = £153,003.89
Chargeable Capital Gains = £146,996.11

Currently a higher rate taxpayer
CGT bill £34,559.07

Not fussed about precise figures just want to make sure I haven't fundamentally misunderstood how PRR relief / CGT as a higher rate taxpayer works

Obviously I'm aware CGT could increase but other than trying to sell asap I don't see anything I can do about that.

Q3. What to do with the proceeds
I currently have a fair chunk of an ILG in my SIPP
I was thinking of selling £100k of this and investing in a basket of property type shares/funds, something like
25% IPRP
25% IUKP
30% across Persimmon, TW & other housebuilders
20% across VIP IT & TRY IT

As I said I'm neither bullish nor bearish on property, the idea is to give myself a bit of exposure to housing as my current exposure is about to be substantially reduced.
The reason for selling the ILG within the SIPP is so the above investments are in a tax-free wrapper
Use £100k of the sale proceeds to buy back the ILG in a GIA (which is fine obviously, it's low coupon)
Use the remaining maybe £240k of the sale proceeds to buy some kind of a Gilt ladder in a GIA, poss a mix of regular low-coupon Gilts and more ILGs

Any views on this? any other decent property-related funds worth considering?

So that's it really, apologies for the long post but I trust the opionions/input of many on here and there are usually a few things I've either misunderstood or not thought of.

mebu60

A house is a nice (literally) solid asset.

A house is a nice (literally) solid illiquid asset.

I don't know enough to comment on your detailed proposals but I would imagine it'll be a lot less hassle for you to sell up and invest the proceeds. You've been fortunate with your current tenant and may well be so again but there's a lot of overhead and risk in being a landlord these days.

DRS1

Sell sell sell.

Not only is MTD coming but so are some changes to the PoA system for self assessment (maybe 3 years away but it looks like a nightmare).

Albermarle

I am no investing expert, but I have two property funds as diversifiers from the main equity; bonds etc holdings.

Both have performed pretty poorly over the years. I do not think you can really compare property funds and owning a residential house.

Exodi

I'd say it's an unfortunate time to consider this, the property market is notably stagnant (a combination of high mortgage rates, delusional sellers holding out for yesterdays prices, stamp duty costs increasing and speculation it may be cut in the future and like you, landlords looking to exit following the RRA2025).

It was just yesterday I read an article by the Telegraph mentioning that data shows on average 60% of houses listed in January are still unsold 6 months on.

1-2 bed flats (which are more likely to be BTL properties) are worst at ~70%.

https://www.telegraph.co.uk/money/property/buying-selling/60pc-homes-listed-january-still-on-the-market/

(You can google '60% of houses unsold' for some non-pay walled articles which are telling the same story).

Personally I wouldn't deliberately look to invest in property, at least in my area over the last 5 years most properties have lost value in real terms. You've done well to enjoy a 375% increase in value over 30 years (where inflation has been a little over 100%), I certainly wouldn't count on above inflation increases in property value in my long-term planning.

poseidon1

The current political climate and the fiscal changes that might result, would suggest you vote with your feet and follow the legion of BTL landlords who have sold.

Specifically, a new Labour leadership may well seriously look at aligning CGT rates with income tax, thereby bumping up your current tax exposure from 24% maximum to a top rate of 45%. That alone would have me bailing out sooner rather than later.

In addition there is also the spectre of a potential move in future to install a Land Value Tax to replace council tax and SDLT.

Currently council tax is an occupation tax largely levied on the tenant ( excluding HMOs), but LVT will be a property owner's tax levied on the landlord in respect of let properties.

With the net cash released on sale, you have the freedom to markedly increase your tax free ISAs if not currently utilising your £20k annual allowance. You already utilise CGT free ILGs in your sipp so as you have observed that is an option for a general investment account as well as low coupon gilts generally.

However I agree with others in giving UK property stocks and funds a miss as general lacklustre performers and look at the much wider investment landscape via index trackers and etfs.

Generally the ease and freedom to move your liquid invested capital around the various different stockmarket instruments available, does now expose the inflexibilty of residential property which increasingly is the target of negative fiscal changes, and legislative restrictions.

jaybeetoo

We sold our BTL well before COVID as we could see the government were making it harder for landlords to make any money. That has only got worse, especially since Labour came to power. We have absolutely no regrets at selling. We put the money into our SIPPs and ISAs across a balanced portfolio which provides an income. We no longer have to worry about the property and have made more money from our investments than we did from the BTL.

Beddie

https://forums.moneysavingexpert.com/discussion/comment/82056186#Comment_82056186

They also said they would bring indexation back to CGT, so if that were to happen it would help a lot of BTL landlords who have owned their properties for a good while. As always, we don't know what will happen, so if I were her I'd be selling now.

masonic

Seems a good point to exit and I don't think it is worth risking the next tenant not being quite as easy to deal with.

TRY is the only property fund I really rate, but I don't currently hold it. It's not unreasonable to look to replace your bricks and mortar with some property-like securities, but as has already been said, they are a different kettle of fish. Depending on your appetite for equities in general, it's worth thinking about whether this would give you a concentration of risk that might better be spread more broadly.

While I am a big advocate of ILG (I now hold more ILG than US equities), I am trying to embrace corporate bonds a bit more (investment grade and shortish dated). It might be worth including such a fund in your list of options.

DRS1

Just on the Maths question I think you get the final 9 months of ownership as part of the PPR period normally. I am not sure if this applies in your case - I would hope so.

PropertyGuru_Wannabe

Buy to let is not all doom and gloom. There are ways to make it work however it depends on what your financial position is going forward. If you are a higher tax payer now, selling up would incur even higher taxes and the property market currently is a buyers market so you probably wouldn’t get the price you wanted to sell for.
You also need to consider what investments you want to hold going forward. Having a balance portfolio is still key to a good strategy rather than having all your eggs in the stock market bracket. If you are going to be a higher tax payer even after retirement, then you may need to even consider whether to put the buy to let into a company structure or just sell it outright at a time that suits you. Good tenants are not easy to find and you have to count your blessings that you currently have one that doesn’t miss payments and looks after your house.

There’s never an easy yes or no answer when we don’t know your tax position going forward and what your final objectives are so just a few considerations for you to ponder.