Accidental Landlord to br requires newbie answers.

[Laird]

Hi,

I hope this is very basic query and I'm sure some one can give me a straightforward answer.

I only have one property a main residence in Swindon which I have held since November 2000. I started doning it up in October 2011.

My work situation started to deteriate so I applied for jobs based in London as well as local. A great opportunity came up in London and I have accepted the job to start in the new year. I have savings and the income from the new job will cover the costs of my main residence and room let in London.

In January I hope to have the property up to spec but this raises a lot of questions....

1.. If I let the house out as a house through a letting agency will it still be my main residence? My understanding is that within the next 3 years the answer is yes. However If I do not live there under the terms of the tenancy agreement after 3 years I have no residence at all and will start accruing CGT on the property?

2.. Secondly I could let rooms out (2) and continue to pay the gass/electricity and council tax. This will allow me to retain the property as my main residence and occasional stay in the small room when visting friends.

What would be the easiest way to do this? The job is a change in direction for me and I would like to give it 6 months and come back if it doesn't work out. If it does work out I would need to consider selling up and moving down. The priority is to settle into the job.

I have had the odd lodgers through friends of friends but this is different as I will be based miles away in London and my not know the lodgers that well.

Please outline the tax situations in both cases. I'm not after making mega bucks but I would like my property to cover costs plus part of my rent in London.

[Paul_f]

You are getting confused. Your main residence is where you actually live at the time, not what property you might own.

As you only own one house then as far as GCT is concerned unless you purchase another house as well then there will be no GCT liability when you sell.

You can let you current home for as long as you need to, but you should obtain formal permission from your lender, if you have one, and be prepared to pay an annual fee to them/it.

You should also serve Grounds 1 & 2 of Section 8 Housing Act 1988 as a pre-Notice when or if you decide on renting it out.

Instruct an ARLA/NAEA/Rics agent for additional protection if you are going to use one. Don't enter into a lease of more than 6 months initially, and then you can let it become periodic which means you can serve notice seeking possession (S.21) if need be by serving a minimum of 2 months Notice on your tenants. Your lender will guide you as to what you can and cannot do.

[eddtheduck]

"As you only own one house then as far as GCT is concerned unless you purchase another house as well then there will be no GCT liability when you sell."

Unfortunately, I know from experience that this is not true. A property counts as a person's residence (for CGT purposes) if that person has a legal interest in it, which includes holding a tenancy. The Revenue's CGT manual makes this clear: www.hmrc.gov.uk/manuals/cgmanual/cg64470.htm (http://www.hmrc.gov.uk/manuals/cgmanual/cg64470.htm)

However, it is possible to nominate which property you want to be treated as your main residence by informing the Revenue within 2 years of holding a particular combination of residences:
www.hmrc.gov.uk/manuals/cgmanual/CG64485.htm (http://http://www.hmrc.gov.uk/manuals/cgmanual/CG64485.htm)

If you don't make a nomination then the Revenue will make a decision on which was your main residence, based on where you were actually living/spent most of your time at.

On the other hand, I don't think you can do this if you have tenants in the house you own, because it cannot be your residence for the period of the tenancy (because you've granted them exclusive possession).

Regarding lodgers, having one lodger appears to be OK, but 2 or more will make you a candidate for CGT (see the Revenue's helpsheet www.hmrc.gov.uk/helpsheets/hs283.pdf (http://www.hmrc.gov.uk/helpsheets/hs283.pdf) - lots of good info in this). From what I've read elsewhere on the site, I think you would have to ensure you came back to the house regularly to prevent them gaining tenants' rights? Not entirely sure about this.

You are right-ish about the 3 year exemption for CGT - but it only applies to the last 3 years you own the property, not any 3 years you choose.

However, even if you became a candidate for CGT, you would still not have to pay anything if the taxable amount came in under the limit after applying all the reliefs. You can still apply private residence relief to the period you were actually occupying the property, then there is letting relief. The helpsheet has details on how to work this out.

The full section of the CGT manual on private residence relief is here: www.hmrc.gov.uk/manuals/cgmanual/CG64200c.htm (http://http://www.hmrc.gov.uk/manuals/cgmanual/CG64200c.htm)

I am not an expert and I'm open to correction on the above - and this is my first post after being a long-time lurker, so hello everybody!

[Faisel Balti]

there's a further £40,000.00 of letting relief under current CGT regs. providing you have previously occupied the property as your principle residence.

FB

[mariner]

Some useful links there EtD. Pleased to see you come out of the shadows.

Another poss alternative to explore is if OP owns and is curr living at main res, OP takes in a well-vetted and respected paying lodger and reserves 1 room for OP use at weekends/visits. Under the Rent a Room scheme ~£4200 max 'rent' can be tax-free (£350 pcm) but then OP would be liable for utilities & CTax on 2 properties.
Google Rent a Room Scheme for T&Cs
If OP Lets to Ts, then S8 ground 1+2 clause must be included in AST before signing & before T starts, even if only a 6 month AST if OP wants later to rely on it.