Sell or rent out house

[Movingon2024]

Wondering if anyone can help me decide as I'm on my own with this.

Moving abroad for work. Own a UK house, with 11 years of mortgage to go.

Unlikely to return to the UK but can't rule it out of course.

Had estate agent round. They said it would rent for more than mortgage payments - about £500 more/ month. Their fees would absorb £300 of this to fully manage, which I would need.

Sale value is around £550,000 (outstanding mortgage £150,000).

I've spent loads on it over the last 5 years so this would not quite cover costs. Plus keen to keep a UK base in case I do return/the Dcs eventually need it (both at uni).

On this basis it looks like renting it out - in an area of high demand - would be best. Mortgage gets paid, and also management fees; we keep the property, giving us potential entry back into UK housing market if needed: estate agent fully manages so minimal hassle for me.

What am I missing? Does this make sense?

Thanks

You will have to get permission from your mortgage provider to let the property out. If you remortgage I am not sure you will be able to get a residential rate or whether you will have to take a buy-to-let deal which typically is a higher rate.

Void periods, damage, non payment of rent are all very real risks.

You'll be taxed up to the eyeballs by the government so you may not make as much money as you think. The tenants may trash the house knocking ££s off the value.

If you have no intention of ever moving back to the UK I'd sell it and invest the money. You'll get a far better return on your money than renting out a house that will more than likely turn into a stressful money pit.

Letting a property is expensive. Especially if you leave it all to a management company as they will not hesitate to book expensive tradesmen at the drop of a hat and then you pay the bill. This will be hard to have any control over if you are abroad.

Then when you eventually get your profit once all the expenses have been deducted you will pay tax on it.

I'm not sure I could be bothered with the hassle when if you sell it you will end up with £400,000 in the bank. Enough to help your DCs get on the property ladder in the future.

Ok that’s 100% consensus so far…..clearly more to think about.

thought it was a no-brainer.

Also if you eventually decide to sell the property having let it you will pay Capital Gains Tax on any profit proportional to the years it want let. If you sell it now you will have no capital gains tax to pay.

Look up section 24. This basically means you are taxed on rent, not profit. Finance costa of mortgage are pretty much disregarded (apart from a small credit),; this is for both capital and interest payments of the mortgage.

I agree. OP needs to consult an accountant/tax advisor to get some numbers/projections as to forecast tax liabilities as the OP could end up having to pay income tax on money they don't actually have. Mortgage repayments aren't a tax deductible expense - there's only a 20% tax reducer on the interest element. Loads of people are getting caught out by this at the moment as it's a fairly recent change in tax laws/rules (last few years).

@Movingon2024 I am not exactly sure what the government intend to do regarding no fault eviction, but we’ve sold our two rental properties. I just wasn’t prepared to be forced to allow a tenant to stay so we couldn’t sell the properties. Both were investments for DDs and they now have been gifted the money, I didn’t want the stress and we had let them out for 20 and 23 years respectively. The govt might look on your situation favourably but it’s presumably becoming a second home.

We owned our houses outright. I really would not want a mortgage hanging over my head with void periods. There can be void periods when you need to renew carpets, decorate etc and you cannot avoid expense. If these had been my home, I would not have liked anyone not looking after them. Some tenants do end others are a bit less bothered. You will pay for inspections, inventories and other legal requirements too. The agents arrange everything and deduct from your share of the rent.

In my view it’s a no brainer to sell. The only people who should be renting out now are multi property rental companies. I’d definitely sell and invest. You would sleep more easily.

This government advice says profit. Then lists expenses. It doesn’t say full rent will be taxed.

Imagine for a moment you didn't own a property. You're just about to move abroad for a new work opportunity. You have £400K in cash savings and/or investments.
In this situation, would you choose to take out a mortgage and buy a property for £550K as an investment for someone else to manage before you leave?

If not - sell;
If so - keep.

Full rent isn't taxed. Its rent minus expenses that is taxed but they don't count your mortgage expenses as an expense to be deducted they are instead used as a tax reducer.

I sold and it's my biggest regret. To be fair the rules were different back then, but if I had to do it again I would try to hard to make it work.

Yes I over-simplified it. But generally the biggest monthly expense a landlord has is the mortgage. Prior to s24 the interest portion of the mortgage was an offsettable expense. Now there only is a small credit back and there is talk of that being removed too. A simplified example is say where rent is £1200. Interest only mortgage is £600. Monthly agent and other expenses £250. So a higher rate tax payer will pay tax on (£1200-£250) so £ 380 tax. So the £1200-£250-£380-£600= £30 loss every month if no tax credit on the mortgage. The tax credit helps slightly. This is the £600 interest only mortgage * 0.2= £120. Thus the overall monthly profit is £90. Not much headroom for major repairs or mortgage rate changes. This is why so many landlords are selling up now. S24 together with interest rate rises in recent years (plus being villianised by all) has made them throw in the towel.

We don’t all have mortgages. Yes, no tax relief on a mortgage. Just the expense of a mortgage. I felt I was a decent LL but glad I’m out. It still seems murky about getting a property back and tenants’ rights will trump a LL’s rights even though they own the property. If you might need to sell for DCs, it might be very difficult with tenants in it if there’s no fault eviction.

We did this with our home and it was financially the right thing however, we realised we are not good at being landlords. Some tenants were good on paper but left the place a mess.

I would say it is a different set of emotions when the house has been your home and you have invested emotions in it.

A base in the UK definitely however, a 550k former home may not be the best option. But, if you can separate your emotions and treat it like a business it would work. £300 a month management fee seems high, I would get a few more prices. Always vet the tenants yourself first too. Sign up for CIFAS and the land registry alert service too.

Good luck. 🤞

£300 will be a percentage. Depends on rental. Sounds reasonable if rent is £1800 ish.

https://www.blackmanterry.co.uk/2023/02/non-resident-landlords-with-property-in-the-uk/#:~:text=As%20a%20non%2Dresident%20you,time%20during%20that%20tax%20year

I think this may apply to you too. Both you and your DH may get the personal allowance.

BTL are mostly interest only and have massively gone up. Plus tax is at your %. So 40%

@HelpmyDCbecomefinanciallysavvy But only one person gets the profit from the rent.

You will have to pay income tax on the rental income which will reduce it by 20% or 40% and likely make it less than the mortgage payment. You can get a discount on the tax bill by 20% of the interest element of the payments and some other items but not much. Then you will have to pay CGT for the years you weren't living there. Which with the labour government is due to increase to income tax thresholds. It's not as simple as it seems. People think they can just keep the whole rental income, don't save for tax and then get slammed plus fines.

Great post.

Along with others telling you the pitfalls of dodgy tenants, income tax, Capital Gains Tax and void periods.

Sell & invest the money.

It’s tricky. Weve been accidental landlords since the pandemic (also to do with moving countries) and have decided to sell up but we’re moving back to the UK with a plan to buy somewhere new where we’ll live. The main thing that persuaded us to sell up was the tax was brutal (I went from part time before the pandemic to full time now which pushed me into the higher tax bracket by a whisker) and concerns about Labour’s plans for landlords. We were pushed into renting out our place by family who didn’t bother to flag the CGT implications though so that is now an added factor and we’re hoping we complete before the new budget.

Thing is if we were staying abroad I might have sucked it up because I felt it was really important to retain a UK base, for similar reasons to you. I always fear once you get off the property ladder in the UK it’ll be really hard to get back on and a lump sum in a bank will inevitably be eaten away.

As others have said, it’s probably worth getting tax advice. Maybe it would be an option to put it in trust for the kids? Don’t know how practical that is tho.

On wow. This is super helpful thanks all.

seems like the consensus is sell.

one thing though - I will have no tax liability in the Uk other than for the rent (salary paid abroad), so would I not have personal allowance here?

no DH just me.

yes anticipated rent is £1800 and fees 300 pm. So15%. Had not realised about CGT thanks.

I recognise I am emotionally attached to the house (safe place after abusive marriage). And issue of retaining UK base remains. But maybe as pp said it doesn’t need to be 550,000 base.

That link on non resident landlords is v useful thank you.

We did it. My Uk personal allowance meant that I never paid tax. You will be able to deduct the interest portion of you mortgage payments.

Please check your management fees as I think that we paid about 150 per month on £2400 per month rent so your quote seems quite high.