Sell or keep?

[Belleende]

I am in need of mn collective wisdom. I own a one bed flat in a v trendy part of east london. Currently rented out. Tenants have given notice. Have owned it for over 10 years, should have about £150k equity in it.
Am worried london property market will tank, both in sales and rental.

We live in a small 3 bed cottage in a town north of london (one box room, one small room, decent master, galley kitchen and downstairs bathroom). I am pregnant with number 2 child. We could add more space by converting loft, but would still be left with galley kitchen. Have about £150k equity in house I reckon. House would be a squeeze come teenage years but we could make it work. We definitely want to stay in this town through school years.

So, do I sell the flat to get a bigger house to live in or hold onto flat as inheritance for kids, and a bit of income in the meantime?
Also do I need to worry about things like capital gains tax if I sell flat. I lived there for 10 years rented for just over 2.

Nobody knows.

It's possible that the housing shortage might get addressed (good) and that housing might become more affordable (good) and that first time buyers might have a less terrible time (good) and this will reduce the benefits of being a landlord (bad? good?)

It's fairly certain that the tide is turning against the BTL trade, even without a change in government. It may turn faster or slower. No-one knows.

Some people will say that the swing against rented social housing under Thatcher was a ploy to increase the number of (home-owning) Tory voters and reduce the number of (Labour-voting) tenants. Should such a thing be true, it may be tried again because, again, tenancies have increased at the expense of homeownership. Last time, it was local councils that suffered; next time it may be private landlords. Nobody knows when it will happen.

We have hopefully nearly sold our London flat. I feel relieved. May be the worse financial decision in long run but I don’t want the stress

I would be tempted to sell as I'd look not only at the investment side but also your lifestyle. Moving to more spacious house will have a positive impact on your entire family's day to day life for a number of years. If you'd like to set aside some money for your children, you could use some of the equity from the flat to set up Junior ISAs or you could increase your pension contributions (getting all that income tax back too so a very good investment) to build up wealth for the future. In addition, when you have a bigger house, you might downsize to a smaller property in retirement which again would release some cash that you could give to your children if you wanted to.
And you're unlikely to be liable for any CGT on the flat in London.

Sounds like you need a bigger home so I'd sell the flat and then look to move.

Your DC may not even inherit due to care fee homes etc.

I'd sell. Why live in a cramped place if you can afford to buy something bigger?

Do you need the rental income? You could increase mortgage using rental income.
There will be capital gains tax to pay on the increase in value over the rented time, not when primary residence.

In terms of CGT, if you lived there for 10 years and rented for 2, tax would be due on 2/12 of the gain. There is an allowance that's tax free ( I think it's 11k(?)). Depending on your tax bracket, that would only be 1-2k if you make 100k, 3-4K if you've made 150k. However, you could mitigate it by increasing pension contributions in the year of sale (for example) and not pay any tax at all.

Disclaimer: I'm not a tax accountant so the figured would need to be checked.

if you live in the property for X months as your main residence, do you still pay CGT? (how long)

In your situation I'd sell both properties and invest in a lovely family home that you can have many years of happiness in. You could always look to downsize once the children have left home if you want to release equity to help them out.

You don't pay cut on primary residence

Cut = CGT

yeah - i know that, but if you were renting out a property(a) and living in another one(b) now, and then you moved in to (a) and had rented out (b), can you then sell (b) without paying CGT?

I'd keep if you can afford it.... We have house just outside London (which Dh has lived in during the week for the last 20+ years. as he has worked away all that time )

and a small house here . We downsized our family home to move here once the DCs had left home .. but the other house will be DHs pension he retires

(sorry to hijack the thread)

Keep it but release a bit more equity to help you move or extend?

We definitely want to stay in this town through school years.

So that's the next 20 years or so? Give your head a wobble - buy a lovely family home. I mean home, not house or investment but home.
What's the point in having an investment property if, meanwhile, you are cramped and miserable. There will be time to buy investments another day.

Ok, looks like mn has spoken. I do love our little house btw, but it is little. We will need all the equity available from both homes to make the sales worthwhile for us in terms of gaining space and rooms.

I would love the bigger version of what we have, but for that it is about double the cost of our wee house.

I will get the flat valued and go from there.

Thanks all, sometimes things happen for a reason. I had been questioning the sense of keeping the flat, but tenants were on a 2 yr lease, so was going to make a call when that was up. Them going early (has hastened the decision, but my bones say sell.

Will keep you posted.....

Agree with what most other people have said OP - sell the flat and your house and buy something bigger.

I’d be tempted to get both sold ASAP though given the shaky Londom prices.

Flog it. There will be cgt but not huge amounts.

The long term plan may be to get all rentals into the hands of housing associations ( race to the bottom)

If you are pregnant then all being well inheritance is decades away, and you need to look after yourself and the kids while they are dependent. They can then get jobs and fund their own lives.