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  • Buy-to-Let

    Consent to let on home

    Hi All,

    First time poster, first time lurker!  I will no doubt have lots of questions.

    We've been living at our property for 5 years and it's gone up in value from £250k to around £400k in that time.

    We are now looking to relocate but instead of selling up would like to keep the house and rent it out in case we decide to move back - house prices in the area are rising so if we didn't keep it we could be priced out of moving back. If we don't decide to move back and instead sell it, I've been told that the tax man will take 50% off any profit SINCE WE PURCHASED the house, not from the time it gets rented.

    So for example, if we rented it out now and decided to sell in 6 months, they would take £75k straight up.  Is this actually correct or is it 50% from the time it's rented, so valued now at £400k, they would only get 50% of profit on anything above £400k?

    Seems crazy that they could take profit from the time we were personally living there and the house gained value.  What they are effectively saying is we would be better off if we sold up and bough an identical house for the £400k as they could then only take any profit from the purchase price of £400k!   It's something we would have to consider as the cost of selling and buying a new house must be less than the £75k+ we would lose for them doing literally nothing!

    So is this true, that they will take 50% of anything above the purchase price?

    Regards,

    F

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    Consent to let refers to permission from your lender, presuming you have a mortgage, to let the property.

    You have been wrongly advised regarding the tax, depending on your circumstances you are likely to pay income tax on the profit from rent at the appropriate rate 20%/40%. You will become liable for Capital gains tax after 18 months of renting the property, but get qualified advice on this as there are reliefs and allowances available. Capital Gains Tax is charged at 18%/28% of the taxable gain.

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    Reintroduce full mortgage interest relief and drop the 3% stamp duty surcharge

    PLEASE sign Petition Here


    If you do decide to rent out the house, its best to contact your lender (if you still have a mortgage) and ask their permission to let, called ‘Consent to Let’. Regarding the tax situation, best to seek professional advice.

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    You do NOT pay tax on ANY gains  achieved whilst it has been your PPR..

    Even  after you have LEGALLY let the property out the CGT calculation doesn't start until 18 months later.

    I believe there is also a £40000 lettings relief as well. 

    Any gains only accrue as long as the property is legally let.

    As soon as you return to your PPR nominating it as such then any CGT STOPS

    It could be that during the period of letting that your property reduced in value from the time you first let it bearing in mind the 1st 18 months of possible  gains are discounted.So you would pay no gains at all

    Have you considered taking in lodgers at your PPR which you wil rarely attend.

    If you have any residential  mortgage interest then I believe S4 faxes are charged. .

    This NOT the case if you take in lodgers.

    Providing you attend your PPR roughly every month then you will retain your PPR status.

    Keep your mail being sent to your PPR and arrange for your lodgers to post your mail to where you are weekly.

    Just provide big SAE.

    Doing this avoids any CGT issues and S24.

    Lodgers are the way to beat the system!


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    @Gary Hodge @Saresh - Thanks - yes I contacted the lender yesterday morning who are sending the consent-to-let forms out for me to fill in which apparently last for 2 months by which time it should all be in place.  Hoping they will approve - As I said the house is worth a lot more than we mortgaged it for now and we effectively own 50% of it, plus the rent will most likely be roughly about 180% of the current mortgage fee so almost doubly covers the mortgage amount. Will still be ~160% of the mortgage even after letting fees.


    So from what you all say, CGT only starts getting applied after the place has been rented for 18 months?  So do they take a valuation of the property at that point and base any CGT on the profit from that point (or maybe we self declare the value of the property at that point and they take it from that)? 


    And even then, CGT isn't 50% but is more likely to be 18 or 28% (and reliefs and allowances can also reduce this further as well)?


    And if we do move back in to the property before 18 months then no CGT is taken, or if we move in after 18 months then only pay CGT on the period from 18 months to the time we move back in?  Is that correct?


    I will obviously speak to a financial advisor as I guess everyone's circumstances are different but just wanted to get a basic understanding first.


    @paul_barrett - Lodgers feel more risky than getting the place rented through an estate agent that do all the credit checks and provide rent protection, especially as this is our first renting experience and we are unsure what to do.  The last thing we need when we are 150 miles away is dealing with someone who fails payment or starts to squat, or trashes the place.  I also have no idea about S24 and S4  which further makes me want to do it more formally through an EA.

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    The last thing you should do is rely on a LA!!

    150 miles away is a 2 hr car journey each way

    Nothing

    4 hrs per month with lodgers.

    Lodgers have effectively no tenure rights

    S24 will kill your returns you could even end up paying more tax than you receive in net income! !!!

    Try the lodger route first.

    Use LRS for RTR  checks

    You won't need rent guarantee as they will only be lodgers who you can boot out very quickly.

    You need to keep everything in your  name.

    At some stage you nay wish to convert the lodgers into tenants but beware of  S24.

    Check with your lender how many lodgers they allow factoring in the new Mandatory HMO regulations this October.

    Very few Accidental LL play it straight as S24 destroys the whole point.

    Check out spareroom and research what lodgers would make for bearing in mind no S24 taxes

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    You sound experienced and like you know what you're talking about and it may be good advice, however you may as well be explaining advanced quantum theory mechanics to an illiterate pond slug. 


    I literally am a the most layman of laymans so, as much as what you say may be best, I still have no idea what you're talking about or if it's best for me, and if I even have the time to dedicate to everything you said.


    To be honest, the primary reason for renting it out is to keep the property so we can move back if we ever wanted to rather than be priced out of the area and never be able to return - and prices in our area are still going up.  We are moving to a much cheaper area where house prices aren't moving as quickly (if at all) so if we do buy up there but decide to come back, we have a property to move back in to. 


    Any residual profit would be a bonus.


    So unless it can be simplified into a very easy to understand process then I can't follow your advice.


    Also, who keeps downvoting you?!

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    No idea but just ignore the down voters they don't know what they are talking about.

    Just keep your property as your current PPR and take on lodgers.

    It is that simple

    Only give a lodger agreement and return to your PPR once a month  minimum.

    That is it

    Very simple.

    You might like to leave a large SAE with the lodgers and request they send any post weekly in it to the address you give them.

    Very shortly I will be moving to a PPR

    Then I'm off to the other side of the world.

    I will leave two lodgers occupying the property who will only have lodger agreements.

    All bills and my official  domestic circumstances will be at the property

    I will not be paying any taxes apart from  Council Tax.

    My home will remain as such even though I will be thousands of miles away.

    Any problems my lodgers will Skype me etc and I have a local contractor to fix things.

    If I can manage thousands  of miles away you can being only 150 miles away; a 4 hour round trip outside rush hours! !

    Simples!!!

    With lodgers there are no taxes to pay whatsoever.

    S24 won't apply.

    If you receive more than £7500 lodger income per year you are legally required to inform HMRC.............................!!!!???

    I would suggest to your lodgers that they pay an inclusive rent for everything as you won't actually be there.

    So charge an extra £300 which should be sufficient  for the following

    TV licence

    Gas/Elect

    Basic broadband; unlimited download

    Council Tax

    Water

    Buy some big envelope stamps and envelopes and ask the lodgers to post your mail once per week.

    If you go the tenant route you will cause yourself  loads of problems.

    Lodgers can be booted out by you very quickly.

    With your situation I would follow what a normal AST would be.

    So your lodger agreement will state you will give them 2 months notice and they need give only 1 month notice which may be given at any time

    So just start off with a rolling 1 month lodger agreement unless the lodgers would like a longer one which would then change to a rolling one month lodger agreement.

    Remember this is your home.

    You can fetch up at it anytime you like

    Lodgers have no rights for 'peaceful enjoyment'.

    It is your home to do with what you will

    If the lodgers don't like it then they can always give notice.

    The mere fact that your lodgers know you will visit very rarely will give them actually far better tenure than a tenant as they exactly your future domestic requirements

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    Paul, no,no,no and no!

    Firstly, S24 is a reduction in mortgage tax relief. As there is no mortgage tax relief at all on a PPR with lodgers, S24 does not apply, but that is not a positive point!

    You are describing lodgers as if all lodgers are licencees. In your scenario they are likely to be considered lodgers with a tenancy or even tenants.

    Although lodger income can be tax free, expenses are not tax deductible on a PPR if using the RAR scheme although it is possible on a main home.

    Charging an extra £300 a month to cover bills is very risky, there are penalties if you are found to profit from the resale of utilities.

    You can't use the RAR scheme if you move out of the UK. Multiple extended foreign holidays may qualify you to be living outside the UK.

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    Reintroduce full mortgage interest relief and drop the 3% stamp duty surcharge

    PLEASE sign Petition Here


    Long holidays do not cause me to lose my PPR status.

    Lodgers are lodgers

    If all my bills etc are at my PPR my lodgers will never become licencees

    Id like to see them try it as I return home after a long holiday!!!

    As long as my full domestic circumstances remain at my PPR then I can only have lodgers.

    It remains my home no matter my proclivities to go travelling.

    Lodger will NEVER have the security of tenure beyond that which is agreed in a Lodger Agreement.

    So when I return from Oz after a year I'd love to see my tenants prevent my entering my home!!

    Will NEVER happen; period!!!!

    As for utilities etc; well obviously you don't tell the lodgers they are paying an inclusive rent.cos the bills are in my name

    So 2 lodgers in my house at £850 each covers everything!!

    Job done!!

    I wouldn't even mind if they have partners

    I'd keep the rent the same.

    I'm already advertising

    No problem in sourcing lodgers!!

    I'm aware of all the wrinkles

    Plus IO will be renting 2 parking spaces out at £30 each per week

    All tax free!!

    I will be a serial tax EVADER

    S24 will make me do so and I will never be caught out!!!!

    In 5 years time I won't be a LL.

    I might be a live in one like you if I can afford to buy a property from my proceeds of selling up

    I can't wait to leave the PRS and start letting to LODGERS!!!

    The sooner the better as far as I am concerned

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    Good luck with the Consent To Let, its the right way to approach it. Don't forget to also change the property insurance.

    You don't need an interim valuation for the CGT, it is calculated on a pro rata basis when you sell. e.g. if you sell in 5 years time your chargeable gain will be 42/120 of the total gain. 120 months in total, minus 60 months living there, minus 18 months so chargeable for 42 months out of the 120. You will still qualify for the reliefs and allowances on the chargeable gain.

    If you rent for a short period and then move back in you may be liable for CGT. Check with a tax advisor. You may also qualify for the Rent A Room allowance if you rent it short term and it remains your main home.

    I am a lodger landlord and there are lots of pluses to having lodgers. This isn't likely to be the best solution for your circumstances. I also have an inherited property 200 miles away which I let through a letting agent. This has worked out well and I would recommend any inexperienced landlord considers using a LA, although now I have gained experience and am ready to reinvest I aim to self manage the next property.

    0
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    Reintroduce full mortgage interest relief and drop the 3% stamp duty surcharge

    PLEASE sign Petition Here