CGT on only property?

[surreyLL]

Hi,

I'm a total newbie to this but trying to do the right thing with the Inland Revenue.

I am a resident landlord. I've started renting out 4 rooms in my "only" house for around (say for ease of numbers) £500 each (so I have an HMO). I'm planning to do this for about 10 years at most. And maybe live here for 15 years in total. In this scenario, would I be liable to CGT, and if so how much could that be if I make £200,000 profit on the sale of my house (after 15 years)?

Also, as a rough idea, could you tell me how much income tax I might have to pay on my rental income. Note I'm a joint owner, in the high earner band as well. My partner is in the low income band.

Thanks for your help.

SurreyLL.

[Tax Accountant]

Hi,

I'm a total newbie to this but trying to do the right thing with the Inland Revenue.

I am a resident landlord. I've started renting out 4 rooms in my "only" house for around (say for ease of numbers) £500 each (so I have an HMO). I'm planning to do this for about 10 years at most. And maybe live here for 15 years in total. In this scenario, would I be liable to CGT, and if so how much could that be if I make £200,000 profit on the sale of my house (after 15 years)?

Also, as a rough idea, could you tell me how much income tax I might have to pay on my rental income. Note I'm a joint owner, in the high earner band as well. My partner is in the low income band.

Thanks for your help.

SurreyLL.

(1) Do both you and your partner live in the house which both of you share with the tenants?

Are all tenanted rooms completely self-contained or do they share common facilities of the house with you and your partner?

It is possible that you may both qualify for 'Rent a Room' scheme. Whether it is advantageous for you both to opt for this scheme is a different matter. It is most likely that this will not be beneficial to you as the Gross Rental is considerably higher than the Rent a Room scheme allowance of £4,250.

(2) Your gross rent is in the sum of £500 x 4 Rooms = £2,000 per month = £24,000 per year.

What is your loan interest and other allowable expenses of the property as a whole? Note that these would need to be apportioned between the part of the property you occupy and part of the property occupied bt the tenants. The apportionment could be by reference to size of the area occupied by you and by them. Common area could be apportioned equally by any other reasonable method.

Ramnik

[surreyLL]

(1) Do both you and your partner live in the house which both of you share with the tenants?

Yes.



Are all tenanted rooms completely self-contained or do they share common facilities of the house with you and your partner?

It's a 3 storey house so the 2 tenants on the top floor are self-contained. The other 2 tenants on the first floor just share the kitchen with us. They have their own washing facilities.



It is possible that you may both qualify for 'Rent a Room' scheme. Whether it is advantageous for you both to opt for this scheme is a different matter. It is most likely that this will not be beneficial to you as the Gross Rental is considerably higher than the Rent a Room scheme allowance of £4,250.

(2) Your gross rent is in the sum of £500 x 4 Rooms = £2,000 per month = £24,000 per year.

What is your loan interest and other allowable expenses of the property as a whole?

We have just a normal mortgage - 5 year fixed at 4.75%. What do you mean by allowable expenses? bills? Water bills are about £60/month, gas and electricity total £180/month. The rooms are all furnished as well.



Note that these would need to be apportioned between the part of the property you occupy and part of the property occupied bt the tenants. The apportionment could be by reference to size of the area occupied by you and by them. Common area could be apportioned equally by any other reasonable method.

The tenants probably occupy 40% of house.


Ramnik

[Tax Accountant]

(1) As far as the rental income is concerned, you will have to calculate your net taxable rents, ie gross rents less allowable expenses. Allowable expenses will be loan interest, utility bills (assuming tenants do not pay these separately), repair costs, furnishings allowance etc. These expenses will need to be reduced to take account of only so much as is reasonably apportioned to the part of the property used by the tenants. I am sorry but I cannot go into the nitty gritty as this will take endless time in toing and froing between us.

It will be taxed to whoever owns the house. If it is owned jointly, it will be taxed equally between the joint owners. You cannot have the house owned by one person and the rent taxed to the other person simply because the pther parson is a lower taxpayer. If you wish to achieve this, you will need to transfer the beneficial ownership of the house to the lower taxpayer. This could be done by a Trust Deed through your solicitors and you should take into account the difficulties if you wish to separate at a later date.

(2) Capital Gains Tax is not an issue until you sell the house. In most probability, your gains will be exempted due to main residence relief. However, this relief will be partially restricted to take account of letting. If so, you will be liable to CGT on only part of the gain. However, any such chargeable gain will also be reduced by Taper Relief, Lettings Relief, annual exemption etc. Again, I cannot go into the nitty gritty for the reasons stated in the previous paragraph.

Finally you could look up some of the websites for further information, such as:

http://www.hmrc.gov.uk/manuals/cg4manual/CG64200c.htm

http://www.direct.gov.uk/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/TaxOnRentalIncomeArticles/fs/en?CONTENT_ID=4017804&chk=mGasop

http://www.hmrc.gov.uk/helpsheets/ir223.pdf

I hope that my reply has helped you. You are also requested to seek professional assistance to benefit fully from the available deductions, reliefs, concessions and exemptions.

Ramnik

[Grange]

Don't forget the implications of being a house in multiple occupation - you will need to talk to your local council and may find that you require installation of fire alarms.

[Tax Accountant]

Don't forget the implications of being a house in multiple occupation - you will need to talk to your local council and may find that you require installation of fire alarms.

In that case, you should also remember the importance, and implications, of notifying all the facts to your mortgage lender and the insurer.

Ramnik