Need LTB on our home to buy another property to live in - help please?

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    Need LTB on our home to buy another property to live in - help please?

    Hello

    We want to make an offer on a property but the highest current offer doesn't need to a sell anything to purchase, so in a better position than us.

    If we do a LTB on our home (so we are in same position) with a 6 month rental contract then sell asap after this to be within the 9 months CGT exemption, I am guessing and hoping this in-between period doesn't count into the 9 months pre-CGT when it becomes empty with no tenant? As would not be our residence or rented out either during this time.

    Hope that makes sense!

    Many thanks for any advice.


    #2
    What do you mean by LTB?

    Unless you are in a very unusual area, a six month (maximum) let is not appealing to most possible tenants, and you have no way of guaranteeing to remove a tenant reluctant to leave in three months.

    You seem really concerned about CGT, unless you've not lived there very long and the place has shot up massively in value, a few month's here or there shouldn't cost that much surely?
    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

    Comment


      #3
      You might be better reducing the price now to secure a sale. Even if the tenants move out in 6 months time you'll still have a void, possibly decorating and other work and the housing market may be a lot softer than it is now. They're already talking about increasing interest rates.

      Comment


        #4
        What do you mean by LTB? Let to Buy mortgage

        Unless you are in a very unusual area, a six month (maximum) let is not appealing to most possible tenants, and you have no way of guaranteeing to remove a tenant reluctant to leave in three months.

        Yes I do agree on both bits

        You seem really concerned about CGT, unless you've not lived there very long and the place has shot up massively in value, a few month's here or there shouldn't cost that much surely?

        The reason being I have owned since 2009 and yes it has gone up lots as I bought in the credit crunch. Despite spending a lot on renovating the whole place I am quite concerned about any CGT at all as could outweigh the benefit of the purchase and move.


        Maybe I have this totally wrong, I understand you pay no CGT on a purely residential property you sell, even if you happen to make a profit over the years, BUT, I thought you can then rent/let that property out and as long as it is less than 9 months you would not have to pay any CGT?

        Comment


          #5
          Originally posted by Advice seeker View Post
          Maybe I have this totally wrong, I understand you pay no CGT on a purely residential property you sell, even if you happen to make a profit over the years, BUT, I thought you can then rent/let that property out and as long as it is less than 9 months you would not have to pay any CGT?
          You have that right.
          But the gain is proportioned and you have a tax free allowance.

          So, let’s take the gain when you sell as £144000.
          Thats (conveniently) about £1k per month.
          So if you sold it after 24 months letting, you’d pay CGT on less than £3k of gain (9 months PRR and £12,300 tax allowance).
          Which is, worst case, about £800. And much less if the property is jointly owned.

          Obviously the figures would be slightly different in real life, because you’d have a different number of months and the gain would be different, but the back of a fag packet calculation is broadly right.

          The longer you keep it and let it out, the higher the tax bill, but also potentially the higher gain and greater rental income. But if you map it out, I don’t think the CGT is likely to be as big an issue as you think it might be.

          A lot depends on your view of property prices going forward, but, even allowing for tax, 72% of any gain isn’t usually that bad a deal.
          When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
          Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

          Comment


            #6
            Brilliant! Thank you, that is great to know.

            Comment


              #7
              Another question to be clear. I believe I am correct in saying the period of letting starts the day the tenancy starts? So if you only did a 3/4/5 month let (for people between properties or relocation for work etc...) I am guessing the period of letting would also stop the day they move out?

              If I had the house up for sale during this time and managed to sell and complete a month or so after they move out, this keeps well within the 9 months and no need to be involved with any kind of CGT?

              Comment


                #8
                Before you make a decision you should consider what happens if things don't go according to plan. You may get a tenant who causes a lot of damage. There's a good chance some work will be required before it's saleable again just from fair wear and tear. You may have Ts who won't allow viewings, Regardless of what it says in the AST that's their right. You may have someone who stops paying - can you afford 2 mortgages for several months? You may have someone who doesn't move out - you then have several months plus court costs to evict them during which time they've probably stopped paying rent. You also need an EICR and GSC and you need to make sure you comply with the regulations to issue a s21 if you need to. Obviously it's your decision but do ensure you make it with your eyes open.

                Comment


                  #9
                  Originally posted by Advice seeker View Post
                  Another question to be clear. I believe I am correct in saying the period of letting starts the day the tenancy starts? So if you only did a 3/4/5 month let (for people between properties or relocation for work etc...) I am guessing the period of letting would also stop the day they move out?
                  You'd be remarkably lucky to find someone like that.
                  They'd have to exist (and I'm sure they do in small numbers) and be in synch with your plans.
                  The non-residence period continues until you start to live there again or sell the property.

                  There's nothing significant about letting.
                  What's important is ownership and residence.

                  When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                  Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                  Comment


                    #10
                    The reason I am concerned about the CGT is the gain could be around 300k on home which I have owned for 12 years and if 6 months of this is rented I am going to risk hitting the 9 months exemption and then CGT if it didn't sell in time? Which could be a lot I believe?

                    Comment


                      #11
                      My calculation of CGT after sale of your former home.

                      if you capture a capital gain of £300K after 13 years ownership and have lived in the property for say 11 years + 3 months , then you can claim exemption to CGT on "owner residence" period + 9 Months after moving out. = 12 years . So no tax to pay on capital gain achieved during 12 years owner residence period..

                      You are liable for tax on period after 12 years = £300K x 1/13 = £23K approx. There is a capital gains personal allowance of £12,300 ( tax free)

                      So you can expect to pay CGT on £10,700 at 28% = £3K approx.

                      Comment


                        #12
                        here is the gov website.

                        https://www.gov.uk/tax-sell-home/let-out-part-of-home

                        Comment


                          #13
                          Thank you Gordon!

                          Did you calculate that based on me renting it out for a period of time?

                          For me I would like to understand if the 9 months counts from day I complete on the new house, or day a tenancy would start and if this stops when the tenancy stops, if the place was then empty a month or so whilst waiting to be sold?

                          Comment


                            #14
                            Originally posted by Advice seeker View Post
                            For me I would like to understand if the 9 months counts from day I complete on the new house, or day a tenancy would start and if this stops when the tenancy stops, if the place was then empty a month or so whilst waiting to be sold?
                            I don't think this works like you think it does.

                            CGT liability arises because a type of asset has increased in value between purchase and sale (in this case a house).
                            There is an exemption that means that the gain for your own residence is not taxable.

                            So when you are not living in a property as your main home, any gain is taxable.
                            That's true whether it's let or not, just sat empty or has someone else living in it.

                            If you actually live in more than one property, you can notify HMRC which one you consider your main residence, and, provided that they agree, the other properties will be the ones liable for CGT.

                            So, for tax purposes, it makes no difference when a tenancy stops or starts, it's totally down to the periods of time that it's your main residence or not.
                            When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                            Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                            Comment


                              #15
                              Ok perfect, yes I was thinking of this slightly differently, so good you said!

                              We are quite lucky being near universities hence why I said about the 2/3/4/5 month thing, which hopefully, can tie in with the place being viewed, sale agreed and completed before the 9 month limit which would surely mean no CGT is due?

                              If I am correct, if it did go over the 9 months, the CGT would be due and increasing each month, but this would have the time of ownership plus the 9 months and tax free allowance deducted from it?

                              Many thanks indeed, I really do appreciate the help

                              Comment

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