CGT - is it worth it?

[brettf]

Hi,

I have a property and have recently had an offer accepted on a new place. I am planning to rent the current flat and move into the new property as my residential.

My question is: is it worth it? If I move out of my current flat and rent it then I guess I would have to pay CGT when I sell the property? I'm not expecting to make any money from the renal as the margins are quite tight.

Can anyone please advise?

Thanks
B

[Nora Kay]

There are a lot of rules to know about with CGT, but on the small amount of information you have given, the position is this:
If you stay where you are and let the new property, the whole of any Capital Gain arising on the sale of the new property would be subject to CGT.
If you leave you current owner/occupied property and go to live in the new place, then sell the first one, you would be exempt from CGT on the proportion of time it was owner/occupied, plus the last 3 years of ownership, plus extra reliefs if it was let for domestic purposes.
You would do well to look CGT up on the Inland revenue's website, or ask your local tax office for the booklet which explains it all in detail.

[LMT]

Hi Brett

You should do your thinking along these lines:
1) Any monthly profit you may make, if it is small, will inevitably be eaten up by vacant periods, wear and tear your time overheads in keeping accounts, advertising, tenancy agreements, safety certificates, etc. So expect to actually have to subsidise this from time to time. Especially if you rent through an agent and have to pay their fees on top
2) If you were to take the equity in your current property (assuming you sold it) and put it into the new one, your mortgage interest would be lower. You can work out how much difference this would make by using some of the mortgage calculators on the web. This is your 'invisible' cost
3) If the rented property is not bringing you in at least as much as the figure in (2) in terms of capital growth, then you will be making a loss in your little venture. Also bearing in mind you are probably an inexperienced landlord and likely to make the odd mistake. Then allow for the CGT and see if it is worth the hassle....looks like you would have to be in for the long term for it to be worth your while.

[MrWoof]

Brett,

LMT is right, BTL is a long term investment but look at the returns, you have capital tied up in the property and yes, look at how much this would save you on your new mortgage, but look also at the future. Mortgage rates go up and down but on the whole, rents only go up as do property values. Returns may be tight now but look ten years into the future, your mortgage payments will be relatively close to what they are now but inflation effectively increases your rental income every year. Look also at how property values have increased over the last few years.

[Yardleystar]

The answer is to sell the place as near to 36 months after moving out as you can - then the gain is cgt exempt.

Any intervening period ie you sell 4 years after moving out, ie 48 months less 36 months = 12 months to which lettings relief applies

[Tax Accountant]

If you need the money or can borrow at better rates, you could remortgage your existing property, upto its value at the date when lettings commenced, and be able to claim tax relief on full interest against the rental income.

Any period of ownership in excess of 3 years after moving out is considered chargeable to capital gains tax. All gains are time-apportioned between exempt periods and chargeable periods.

Any gains apportioned to chargeable periods is further reduced by lettings relief of upto £40,000 per each joint owner, ie upto £80,000 for a couple. After deducting lettings relief, remaining gains, if any, is further reduced by taper relief of upto 40% depending on how long the property is owned. Remaining gains, if any, is reduced by annual exemptions of £8,500 per each joint owner.

In short, depending on how long you have owned the property before commencement of letting, you may carry on letting for a lot longer than the 3 years after moving out and still not be liable to much capital gains tax, if any.

My personal opinion is that properties have done well for most people who have bought sensibly and retained it for the long term, regardless of what amount of CGT is payable ultimately. You should only sell if you have better use of your equity in the house. I would advise you to retain the property if it is in a good letting area where it lets easily.