Should DH move into our rental?

[smoothceiling]

13 years ago we became accidental landlords to a property when we had to move away for DH's job and we were housed by his employer so we just rented out our 1 bed flat. Last year he took a new job but wasn't housed by his new employer and so we bought a cheap do-er upper house that fits us and our DC using an inheritance for a deposit. We had to do this quickly so no time to put the flat on the market. We remortgaged the flat though and released some money to do urgent repairs on the do-er upper which will be started this summer. The rent we get does not quite cover the mortgage but we were able to cover the difference as mortgage on the do-er upper is manageable

However DH was utterly miserable in the new job and has handed in his notice and has taken a job in the city where the flat is. He will now live in that city during the week whilst kids and I stay in the do-er upper. DH will be able to rent somewhere cheaper than our flat as our place has a garden and is a pretty terraced Victorian converted place so it gets a better rent. However we are trying to work out whether it would be better for him not to rent another place but to move into the flat we own or to rent somewhere cheaper. This would mean we had quite a large top up each month. We are trying to work out if it makes financial sense as we realise that we pay tax on the rent payments we receive even though they don't cover the mortgage, so this tax would be less. Also we are wondering whether calling the place him main residence as he will be there more than at home so that we don't have to pay so much capital gains if we sell it. In a years time the DC and I will have to follow him there so we could look into buying the flat upstairs and converting back to a house or selling both and buying something we can all fit it.

Appreciate any advice you might be able to give or even if you can recommend someone we could speak to to help explain best course of action!

What is the plan with your current tenants?

We would have enough time to give them the two months notice. They are only on a short term lease

I'm not quite clear which route leads to the large monthly top up, but do the other one!
Unless, DH moves into your flat, and you put it on the market. Then take the cash out of the flat, ready to buy when you all move to the city. Is buying the flat above realistic, or dreaming?

If your DH moves into the original flat, your top-up = cost of the mortgage on the flat itself.

If your DH rents a cheaper flat & tenants stay, your top-up = cost of the difference between rental flat income from tenants than mortgage, PLUS the extra rent for ‘cheaper’ place.

I’d assume option 2 is more expensive overall than giving notice to tenants and just paying the mortgage?

Just do what makes financial sense right now. You can figure the rest out when things are clearer. What if he hates this job too in 6 months?

It's a really hard one to call- I realise if he moved in there we would make a saving on the tax we are paying out on the income from the rent (even though we aren't making a profit) so we'd be able to offset that as well. I think we need to speak to a tax advisor. Anyone know one who specialises in property taxes?

How much would the CGT be if you sold the property?
It might well be worth gathering your financials and talking yo a tax consultant if this is a long term decision.

But numerically month by month, what are the figures? I think you’re overthinking it by adding the tax element, honestly. It’s probably pretty clear one way or the other on a monthly basis?

For CGT, even if he moves in now and you want to sell in a year’s time, you’ll only gain 3 months’ worth of PPR to reduce your CGT bill, because the final 9 months before sale are automatically exempt from CGT. How long did you live there before renting it out for 13 years? How much has it gone up in value from when you purchased? If you don’t sell it in a year and move in instead, CGT is irrelevant anyway.

It all sounds like you’re complicating a decision to me. What’s the monthly effect of option 1 (give notice to tenants, pay mortgage, DH lives there), or option 2 (keep tenants + rent income, pay mortgage, pay rent on another property)?

If it was a permanent situation of him living away in the week I'd go for whatever is most comfortable for him assuming you can balance the payments without someone (you/him/kids) missing out.

However when you add selling up and moving etc into the mix I would take some specialist financial advise as there are so many things to be taken into account.

Also, CGT and the effect on your tax return of being a LL is not too hard to work out yourself if you only have this one rental
property. I wouldn’t think you need a property tax specialist - in this scenario where we were accidental LLs and then sold after 12+ years we just did the calculations ourselves.