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  • Tax

    Tax implications of renting existing home

    Paul, I agree income from lodgers has no effect on CGT, but the number of lodgers could. I have pasted paragraph 6.3 of the attached document below. It would be interesting to hear Shelter's opinion.

    6.3 If I sell the property, will relief from Capital Gains Tax be affected by some of it having been let?

    When a property is sold, tax may be payable on the gain made. Where the whole of the property was occupied as the owner’s home throughout his or her ownership, the sale is exempt from tax; an owner can take in one lodger and still be exempt, so long as no part of his or her home has been let.

    If you have let part of the property, the proportion of the gain that is taxed depends on what proportion of your home was let and how long for. You may be able to claim lettings relief against Capital Gains Tax on the let part. But this will only apply if the let part is still such that overall the property can be considered as one dwelling – so, for example, while letting a bedsit would qualify, lettings relief is not available if the let part of the property was a self-contained flat.

    For more information, see Letting and your home IR87 or the HM Revenue and Customs Helpsheet Private Residence Relief IR283 available from Orderline 0845 6055999.

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    Yep I concur with what you intimate.. I am working on the premise that only lodgers are taken in that share the common areas

    At no time should there be a separate let part of a PPR as I appreciate this could generate a CGT liability.. I am looking at this RFR CGT situation completely on the basis of a regular lodger situation as prescribed in the Govt RFR scheme.

    The number of lodger households shouldn't give rise to any CGT liability.

    But I appreciate that this is an issue which appears to be not clear.

    I would like to know what is the exact situation for future reference.


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    Dear Carol,

    Thank you for your message.

    So if I understand this correctly….

    In 2010, you purchased property “A” for £142k which you have lived in ever since, albeit with work carried out on your main residence at a cost of £10k.

    In 2014, you purchased propery “B” which you have never lived in, but have been renovating.

    Now, you plan to move from property A into property B.

    The decision therefore is what to do with property A: let to tenants, or sell up.

    First of all, touching upon one of your comments, you would only declare a capital gain once the property is sold.

    After moving into property B, if you sold property “A” now, then CGT would not fall due, as you would be covered by PPR relief.

    After moving into property B, if however you retained property “A” and begun letting it to tenants, you would still be entitled to PPR relief for the period you lived there.  If you let out a property which was once your main residence, then the last 18 months you can also claim PPR relief for.  Therefore, you could let the property for 18 months and still benefit from PPR relief.  In fact, you could let the property for even longer and benefit from lettings relief, worth up to £40,000 per person, as well as your annual exemption, which is currently £11,300.

    I note there is no mortgage on the property, but there are still a wealth of other expenses which may be claimed for.  Although it is worth pointing out the new Section 24 rules with regards finance costs in any case.

    It would be useful to learn more about your overall income from all sources, as this may have a bearing on the best route forward.

    I hope this gives a flavour of some of the many considerations, and a property tax specialists, we would be more than happy to discuss any advisory requirements in greater detail and work on a suitable strategy.

    Best wishes,

    RITA4Rent

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    RITA4Rent (Rental Income Tax Advisors)

    Specialists in Landlord Taxation

    Recommended tax advisors of the Residential Landlords Association

    Follow us on Twitter @Rita4Rent

    clients (at) rita4rent (dot) co (dot) uk

    http://www.rita4rent.co.uk


    Thanks RITA4rent, this is very useful information that I wasn't aware of. It sounds like I can rent out the house for 18 months and have no cgt to pay if I sell it soon after, or even for longer as I can make use of £40000 lettings relief or the annual exemption of  £11300.

    Would I likely be able to get a buy to let (or let to buy?) mortgage on it to free up some capital without too many issues/costs? What are the costs involved? Survey etc? Is it usually recommended to do this or to leave the equity in the house if it's not needed for other reasons? My income is quite low at the moment, I'm not working as I'm choosing to care for my young children until they've both started school. I have share dividends and building society interest which amounted to around £6500 this year.

    Your help is much appreciated.

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    In 2014 I bought a new home (which I have been doing up bit by bit). I had a choice similar to yours: Sell my old home, or let it?

    At the time PPR relief included the last 3 years of ownership, though George Osborne announced that it would be reduced to 18 months before completion. My old home is in Reading, and due to Crossrail prices in Reading were rising rapidly.  So I decided to hang on to it for a few years to take advantage of that growth. I went for 5 year fixed mortgage since a snall CGT liability should be taken up by the CGT allowance, and if it was too large for that I wouldn't be complaining. I had lived there for 18 years.

    I paid £80k in 1996, for the LTB mortgage in 2014 it was valued at £210k and Zoopla put it at £317k earlier this year.

    I plan to sell in 2019 as my pensions due that year will push into paying S24 tax. Using the proceeds to pay off mortgages the loss of income will be roughly cancelled out by the reduced mortgage payments.

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