Renting out your own house & tax

[LarryDuff]

Not sure if i'll get a reply but thought it was worth a try.

We bought a house in 2016 but decided to move out of the area this year so we're renting our house out and renting another property in the new area. At the moment our mortgage hasn't changed but we've been told that we may need to switch to a buy to let mortgage. We don't intend to move back into the house and we're trying to weigh up our options for selling or continuing to rent.

My question is, what are the tax implications of continuing to rent it out for another 12 months (only been 3 months so far)? At what point will be liable for capital gains tax? I know I have to pay income tax on the rent and I think that will start next year (started receiving income Jan2019) but as it's our only property will be exempt from CGT or doesn't that matter?

Should I speak to a tax advisor or is this too petty a matter for them? I don't know where to find the information I need.

Bump, as I'm interested too.

www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief-2018

^Here is the information you need.

In short, it doesn’t matter if it’s the only property you own. You get full relief from CGT if you don’t live there for the last 18m before you sell but you get some relief proportional to how long you lived there vs. how long you didn’t if it goes over that.

You need to complete a Self Assessment Tax Form if your income from rental is between 2500 & 9999 after your allowable expenses or 10,000 or more before allowable expenses. (Allowable expenses are day to day running costs- Save your receipts for this.)

If you have not submitted a Self assessment before, it is really easy but takes a little time to complete and make sure you have a government gateway number, which you get online.

The gov.uk website is really helpful. Capital Gains tax will only be paid upon sale of the property, and the rules vary depending on if the house has been your home or just an investment Buy-to-let. There are also rules about if you use the proceeds to buy another house etc so I would get specific advice for your circumstances about it.

Some more info ... www.litrg.org.uk/tax-guides/other-tax-issues/capital-gains-tax#toc-what-is-the-annual-exemption-

If you are renting your property you need to inform your mortgage provider straight away.

You will need of declare the rental income and pay tax on it from the date at which you started receiving this rent but that declaration won't need to be done until January 2020 if you do it online.

CGT: If you move out of the area due to work but previously lived in the house as your main residence, you may be able to live away from it for 3 years and it still remain your principle residence.

www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief-2018#definition

You will also be able to consider letting relief during periods where the property was not considered your main residence and you paid tax on the rental income.

www.which.co.uk/money/tax/capital-gains-tax/capital-gains-tax-on-property-avuq96u1500f#headline_6

Changes from budget 2018 reduced the 18 month period at the end of the ownership to be excluded for CGT purposes to 9 months as from April 2020.

You will also be able to claim 11,700 annual exemption per person on any residual gain so many allowable ways to reduce the CGT liability.

There are no differences whether you reinvest the proceeds in another house when you come to sell it.

Lettings relief is also irrelevant (mentioned above) as it is about to be scrapped next April, so your proportional gain made in 2019 is already exempt due to the last 18 month rule, so lettings relief won't apply, and after 18 months, lettings relief won't exist anymore.

Ok that's really helpful, thank you. I'm ok with the tax on the rent income I was more worried about what happens when we sell but looks like we should be ok there too from what people have said here.

At the moment you don’t have to pay any CGT for the years you lived in the property, plus an additional exemption for the final 18 months that you owned it, even if you weren’t living there at the time. But from April 2020 this final period exemption will be cut to 9 months.

The other change is arguably a bigger deal and involves something called lettings relief, which currently provides up to £40,000 of relief (£80,000 for a couple) to people who let out a property that is, or has been in the past, their main home. From April 2020, lettings relief will only apply where the owner is sharing occupancy of the home with a tenant – effectively spelling the end of this perk.